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Cartel Regulation 2021

Cartel Regulation 2021

Cartel 2021

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Senior business development manager Adam Sargent 2021 [email protected]

Published by Law Business Research Ltd Contributing editor Meridian House, 34-35 Farringdon Street London, EC4A 4HL, UK Neil Campbell

The information provided in this publication McMillan LLP is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a – Lexology Getting The Deal Through is delighted to publish the twenty-first edition of Cartel client relationship. The publishers and Regulation, which is available in print and online at www.lexology.com/gtdt. authors accept no responsibility for any Lexology Getting The Deal Through provides international expert analysis in key areas of acts or omissions contained herein. The law, practice and regulation for corporate , cross-border legal practitioners, and company information provided was verified between directors and officers. October and November 2020. Be advised Throughout this edition, and following the unique Lexology Getting The Deal Through that this is a developing area. format, the same key questions are answered by leading practitioners in each of the jurisdictions featured. Our coverage this year includes new chapters on Argentina, Bulgaria, France and Spain. © Law Business Research Ltd 2020 Lexology Getting The Deal Through titles are published annually in print. Please ensure you No photocopying without a CLA licence. are referring to the latest edition or to the online version at www.lexology.com/gtdt. First published 2001 Every effort has been made to cover all matters of to readers. However, specific Twenty-first edition legal advice should always be sought from experienced local advisers. ISBN 978-1-83862-310-4 Lexology Getting The Deal Through gratefully acknowledges the efforts of all the contri­ butors to this volume, who were chosen for their recognised expertise. We also extend special Printed and distributed by thanks to the contributing editor, Neil Campbell of McMillan LLP, for his continued assistance Encompass Print Solutions with this volume. Tel: 0844 2480 112

London November 2020

Reproduced with permission from Law Business Research Ltd This article was first published in December 2020 For further information please contact [email protected] www.lexology.com/gtdt 1 © Law Business Research 2020 Contents

Foreword 5 Finland 111 Neil Campbell Mikael Wahlbeck, Antti Järvinen and Niko Hukkinen McMillan LLP Frontia Attorneys Ltd

Global overview 6 France 120 Roxann E Henry, Lisa M Phelan, Megan E Gerking and Lionel Lesur and Anna Sacco Robert W Manoso Franklin Morrison & Foerster LLP 128 Argentina 9 Markus M Wirtz and Silke Möller Miguel del Pino and Santiago del Rio Glade Michel Wirtz Marval O'Farrell Mairal Hong Kong 137 16 Marcus Pollard and Kathleen Gooi Fiona Crosbie, Rosannah Healy and Ted Hill Linklaters Allens India 144 Austria 26 Anima Shukla and Subodh Prasad Deo Andreas Traugott and Anita Lukaschek Saikrishna & Associates Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG Japan 153 Belgium 32 Eriko Watanabe and Koki Yanagisawa Laure Bersou and Pierre Goffinet Nagashima Ohno & Tsunematsu Daldewolf Malaysia 164 Brazil 41 Nadarashnaraj Sargunaraj and Nurul Syahirah Azman André Cutait de Arruda Sampaio and Onofre Carlos de Arruda Sampaio Zaid Ibrahim & Co OC Arruda Sampaio – Sociedade de Advogados Mexico 173 Bulgaria 50 Rafael Valdés Abascal and Agustín Aguilar López Anna Rizova and Hristina Dzhevlekova Valdes Abascal Abogados Wolf Theiss Portugal 182 Canada 61 Mário Marques Mendes and Alexandra Dias Henriques William Wu, Guy Pinsonnault and Neil Campbell Gómez-Acebo & Pombo McMillan LLP Singapore 194 China 74 Lim Chong Kin and Corinne Chew Ding Liang Drew & Napier LLC DeHeng Law Offices Slovenia 205 Denmark 90 Irena Jurca, Katja Zdolšek and Stojan Zdolšek Frederik André Bork, Olaf Koktvedgaard and Søren Zinck Odvetniska druzba Zdolsek Bruun & Hjejle South Korea 213 European Union 100 Hoil Yoon, Chang Ho Kum and Yang Jin Park Mélanie Thill-Tayara and Marion Provost Yoon & Yang LLC Dechert LLP

2 Cartel Regulation 2021 © Law Business Research 2020 Contents

Spain 225 283 Andrew Ward, Irene Moreno-Tapia, Carlos Alberto Ruiz and Elizabeth Morony, Samantha Ward, Ben Jasper and Alexandra Buckley Marta Simón Clifford Chance Cuatrecasas United States 295 Sweden 236 Steven E Bizar and Julia Chapman Johan Carle, Fredrik Sjövall and Stefan Perván Lindeborg Dechert LLP Mannheimer Swartling Vietnam 305 Switzerland 246 Nguyen Anh Tuan, Tran Hai Thinh and Tran Hoang My Mario Strebel and Fabian Koch LNT & Partners CORE Attorneys Ltd Quick reference tables 314 Turkey 259 Gönenç Gürkaynak and K Korhan Yıldırım ELIG Gürkaynak Attorneys-at-Law

Ukraine 272 Nataliia Isakhanova, Yuriy Prokopenko and Andrii Pylypenko Sergii Koziakov & Partners

www.lexology.com/gtdt 3 © Law Business Research 2020 Foreword

Neil Campbell McMillan LLP

This 21st edition of Cartel Regulation is the most current and compre- jurisdictions, the extent and depth of coordination is not nearly as signif- hensive source of information about cartel and enforcement icant as in merger reviews. around the world. Cartel Regulation 2021 provides a detailed explanation of the state During the first two decades of the 21st century, there has been of play in this high-stakes field, including recent developments over the enormous growth and development in competition laws and enforce- past year and an overview of future changes that may be expected in ment activity. The International Competition Network (ICN) has each . In addition to the in-depth coverage provided for 30 of played a significant role in fostering this expansion through its Cartel the most active jurisdictions, this essential reference includes a global Working Group. overview prepared by Morrison & Foerster LLP. Cartel Regulation 2021 Anti-cartel provisions are a core pillar of every competition also includes new chapters on Argentina, France, Germany, Spain and law regime. This reflects the broad consensus that certain types of the United States. competitor coordination are so unlikely to have pro-competitive or The deskbook is structured using a template that ensures consistent efficiency-enhancing benefits that they can safely be prohibited – and presentation and ready access to the relevant information about each penalised severely – without the need for a case-specific assessment of subject in each jurisdiction. The country profiles include overview mate- anticompetitive effects. rial on the and enforcement institutions, information about The global pandemic has prompted enforce- the jurisdictional and substantive coverage of the regime, and detailed ment agencies to reconsider priorities and how they discharge their discussions regarding the design and operation of immunity and leni- mandates. Most are adapting quickly and effectively. Many agencies ency programmes as well as contested proceedings and penalties. The have signalled a willingness to exercise discretion not to enforce cartel increasing scope for private, collective or class actions by affected direct laws against competitor collaborations that have genuinely positive or indirect purchasers, and how they interface with agency proceedings, health objectives. However, in most cases, this has been accompanied are addressed as well. This year’s volume also summarises changes by clear warnings that attempting to use covid-19 as a cover for conduct in laws or enforcement policies arising in response to the challenges that is not in the public interest would not be accepted and those cartel caused by the coronavirus pandemic. laws would be vigorously enforced in such situations. The chapters in Cartel Regulation 2021 have been prepared by Despite the ‘soft convergence’ regarding the importance of cartel leading experts in each jurisdiction. We deeply appreciate their efforts enforcement, there are significant differences in the design and opera- to provide thorough reports on their regimes, which include practical tion of individual regimes. Differences related to institutional design, advice on how enforcement really works and tips for ‘getting the fine enforcement processes, legal standards and sanctions generate down’. I would also like to thank the Lexology Getting The Deal Through substantial complexity in cross-border cases. The criminal liability expo- team for all the work they do to produce this excellent annual volume, sure for and individuals in some but not all jurisdictions especially during this year’s challenging conditions. and the expanding civil damages exposures add further challenges for If you have comments or suggestions that you would like us to parties under investigation and their advisors, as well as for enforce- consider for next year, I would be delighted to hear from you at +1 416 ment agencies. While inter-agency cooperation occurs among some 865 7025 or [email protected].

www.lexology.com/gtdt 5 © Law Business Research 2020 Global overview

Roxann E Henry, Lisa M Phelan, Megan E Gerking and Robert W Manoso* Morrison & Foerster LLP

The global cartel environment has largely tracked developments in the EC imposed fines totalling €31.6 million against a Dutch food processor geopolitical world with lots of excitement and talk of new directions, but and French farming group, stemming from a 13-year conspiracy to a lack of international cartel enforcement actions. We explore here a few fix the of a variety of canned vegetables. The cartel centred on undercurrents and emerging issues in enforcement efforts around the France’s food services but impacted the entire European world, many of which reflect a decline in the international cartel investi- market. With respect to national enforcers, in August 2019, the Italian gations that have defined recent years. Competition Authority (AGCM) fined 23 corrugated cardboard makers Similar to the retraction from globalism in the political sphere, a total of €287 million for fixing the of corrugated cardboard jurisdictions around the world have shown a greater focus on domestic, sheets and packaging. The cartel, which also ensnared the country’s more localised . This includes the application of cartel rules paper Gruppo Italiano Fabbricanti Cartone Ondulato, to labour markets and ‘no-poach’ agreements, as well as increased operated from 2004 through to 2017. Elsewhere in Europe, the Finnish enforcement efforts against collusion targeted towards government Competition and Consumer Authority imposed €9 million in fines against procurement. One significant exception to the trend of inward-looking bus companies for hindering competition in the bus market and the enforcement is the digital marketplace. Enforcers have turned to look Austrian Federal Competition Authority continued to pursue an inves- more closely at the borderless world of digital markets, and not just tigation into a sugar cartel, including fining a German sugar company for dominance. The review of several high-profile mergers and major and its Austrian subsidiary for operating a sugar cartel in Austria from investigations of technology companies by agencies around the world 2004 to 2008. further increase the risk of uncovering collusion. This trend is also present outside of Europe. In the US, the The decline in international cartel investigations by government Department of Justice (DOJ) Antitrust Division has been working with agencies has been counter-balanced by a significant rise in private both federal and state agencies to prosecute price actions for damages in the US and increasingly in Europe and else- fixing in the US generic , announcing its third where. Enforcement agencies have admitted to a decline in leniency charge in its ongoing investigation in May 2019. Other domestic investi- applications, which previously fuelled investigations in a number of gations include tax foreclosure auctions, bid-rigging in the construction industries. Multiple jurisdictions, including for the first time the US, industry, a recently announced probe into the broiler chicken industry, are offering increased benefits to companies with comprehensive anti- and car companies allegedly agreeing with the state of California trust compliance programmes, up to and including the potential for a regarding car emission standards. The latter action provides one declination in prosecution. The is still out on the impact these incen- example of how the political divisiveness that has engulfed much of the tives may have on reducing cartel conduct, and interestingly, whether geopolitical landscape is suspected of having crept into cartel enforce- they will increase leniency applications (because more problematic ment. Other examples of domestic-focused enforcement from around conduct will be detected if strong compliance programmes are in place) the globe include Mexico’s competition authority’s (COFECE) investi- or further decrease leniency applications (because a non-prosecution gation into potential no-poaching activity among soccer clubs, which option may still be available, even for companies that forego seeking COFECE anticipates will take two years or more to complete, and the leniency but have robust compliance programmes in place). In contrast Japan Fair Trade Commission’s (JFTC) action against several manufac- to the enforcement decline, private actions for alleged cartel conduct turers of steel and aluminium cans as well as an earlier action against continue to flourish in the US and to grow in other jurisdictions, with domestic asphalt manufacturers. one decision in the UK creating the broadest application possible for It remains to be seen whether these or any other recent domestic collective actions. actions will be the thread that leads to the next wave of multijurisdictional­ investigations. In the meantime, firms must continue to be wary of the Domestic come into focus as international cartel cartel enforcement efforts of their local competition authorities. enforcement declines After nearly two decades of multijurisdictional cartel enforcement, Labour markets face increased scrutiny from multiple enforcers there has been a conspicuous lull in global investigations. Many of While fair treatment of workers has long been a political agenda around the international cartels, such as auto parts, electronics, and shipping the world, cartel-related initiatives have recently focused on the ability that dominated the agenda for years, have largely run their course. of workers to move from job to job without their employers colluding Regulators have emphasised that cartel enforcement remains a central to impair that freedom. These types of arrangements, referred to as priority and some analysts predict that the second half of 2019 may see no-poach agreements, have increasingly come under investigation, domestic investigations turn into multijurisdictional cases. often with corollary -fixing agreements. In addition to the COFECE In the interim, jurisdictions appear to be more heavily focused on soccer investigation referenced above, in 2017, a trio of PV and lino- domestic cartels. Across the EU, 2019 has seen a series of domestic leum floor covering manufacturers were fined more than €300 million enforcement actions, both by the European Commission (EC) and by indi- by the French Competition Authority in connection with a gentleman’s vidual countries’ enforcement agencies. For example, in September, the agreement not to solicit each other’s employees. The companies also

6 Cartel Regulation 2021 © Law Business Research 2020 Morrison & Foerster LLP Global overview agreed to exchange salary and bonus information with one another. agencies could delay resolution of investigations and create additional Similar enforcement actions have taken place in Italy (modelling agen- complications for companies attempting to reach a global settlement. cies), Spain (freight forwarding), and the Netherlands (hospitals). Both This is similar to concerns that often surface in jurisdictions where sepa- the JFTC and Hong Kong Competition Commission published guidance rate agencies (one with a competition law focus and one with authority in 2018 explaining that no-poach agreements would violate those juris- to bring criminal charges) may be investigating the same conduct. dictions’ competition laws, although no enforcement actions have been publicly announced. More recently, competition enforcers in France Digital markets increasingly in crosshairs of enforcers and Portugal have called for a renewed focus on no-poach agree- Anti-trust enforcers have increasingly turned their attention to the ments but, again, without any corresponding announcement of active borderless world of digital markets as a source for potential cartel investigations. conduct. Their efforts have involved both newer cartel concerns, such In the US, the Antitrust Division has acknowledged open criminal as the use of algorithms, and traditional cartel concerns applied in investigations into the conduct of employers agreeing not to solicit new settings. or hire each other’s workers. While it historically treated such agree- When it comes to the digital economy, the EC has been more ments civilly, the Antitrust Division in 2016 warned that going forward, concerned with anti-trust policy and abuse of dominance cases than it would consider ‘naked’ no-poach agreements as criminal violations of with the enforcement of cartel cases to the data. The Von der Leyen the anti-trust laws. However, currently, and despite purportedly active Commission decided that Margrethe Vestager will remain as commis- investigations, no charges have been filed. The political divide has also sioner for competition and will additionally serve as surfaced in this area, as the state of Washington has sued to stop fran- vice-president for the digital agenda to make Europe fit for the digital chisors putting no-poach clauses into franchise agreements, while the age. This dual role for Vestager emphasises the growing importance Antitrust Division has responded by submitting briefs in the litigation of the link between anti- and digital markets within the to explain its view that those agreements are vertical and thus are European Union. not per se cartel conduct. The Antitrust Division’s interest has focused This connection includes the use of price-setting algorithms using on horizontal no-poach agreements, but it also recently sponsored a artificial intelligence, an area of scrutiny that will likely continue in roundtable to look more closely at how anti-trust and labour markets Vestager’s next term. Until now, the Commission’s stance has been that, intersect more broadly. where a company uses algorithms, it is accountable for any resulting As the demand for highly skilled workers continues to grow and harm to competition – no matter if the algorithm’s action was foresee- the pool of qualified employees seemingly shrinks, some firms may able or not. As Vestager has made clear ‘businesses . . . need to know respond by attempting to reduce or eliminate hiring and wage competi- that when they decide to use an automated system, they will be held tion. Enforcers have made it clear that they are watching for these types responsible for what it does. So they had better know how that system of practices in labour markets across multiple industries. works’. To date, however, the Commission has not pursued a cartel resulting from price-setting algorithms. Enforcers continue to crack down on collusion in government Enforcers have also monitored digital companies’ , procurement including the use of most-favoured-nation clauses. The Dutch hotel- While cartel treatment of no-poach agreements is a relatively recent booking portal Booking.com recently scored a victory in Germany phenomenon, bid-rigging has long been considered one of the ‘hardcore’ over hotel reservation clauses. The Federal Cartel Office found Booking’s violations that anti-cartel rules are intended to . Unsurprisingly, the clauses requiring that the booking portal offered the lowest government procurement process is often a prime target of bid-rigging price were anti-competitive. The regional court in Düsseldorf found that schemes. In recent years, numerous jurisdictions have undertaken certain narrowly applied pricing clauses are not anti-competitive, but concerted efforts to root out bid-rigging among government contrac- necessary to ensure a fair and balanced exchange of services between tors, often as a corollary to broader anti-corruption enforcement. These portal operators and hotels. Over the summer, the JFTC reportedly schemes have been uncovered in a variety of industries, including conducted raids of Booking.com and several other online travel agen- railway infrastructure (Belgium), asphalt paving (Brazil), playground cies as part of its probe into their use of similar contract clauses. In the construction (Slovakia) and cemetery maintenance services (Lithuania). UK, the Competition and Markets Authority (CMA) established guide- In most jurisdictions, cartel fines serve as the primary deterrent lines for booking portals; among other requirements, booking portals against bid-rigging schemes. However, in the US, the Antitrust Division are prohibited from giving a false impression of the availability or popu- in 2018 announced an increased reliance on section 4A of the Clayton larity of a hotel or hiding compulsory charges in the headline price. Act, 15 USC section 15a, which allows the government to recover treble In the US, the Antitrust Division and civil damages when it is injured as the result of a violation of the anti- have announced investigations into the technology sector, but criminal trust laws, in addition to criminal fines. The has been on the cases to date have involved defendants using new technology for old- books for a number of years but has been rarely used until now. To high- school collusion. For example, the Antitrust Division has announced a light its renewed focus on this statute, the Antitrust Division announced number of charges stemming from its investigation into e-commerce settlements with three South Korean fuel companies for their role in a companies conspiring to fix prices for customised promotional products. long-running bid-rigging conspiracy that targeted fuel-supply contracts The products at issue were sold exclusively online, and the co-conspira- with US bases. In 2019, two additional companies pleaded guilty tors used social media platforms and encrypted messaging applications and several individual defendants were charged in connection with their to reach and implement their agreement. In addition, the Antitrust role in the conspiracy. In addition to agreeing to criminal fines, each of Division has just recently charged a second individual in connection with the five corporate defendants who pleaded guilty also agreed to pay civil bid-rigging of online auctions for computers and other used equipment penalties to settle parallel civil section 4A claims pursued by elements being sold by the General Services Administration. According to the of the DOJ’s Civil Division. Antitrust Division, the co-conspirators agreed who would submit bids The Antitrust Division has expressed hope that increased reliance for particular lots for sale and which co-conspirator would be desig- on both criminal fines and civil penalties will serve as a more effec- nated. Thus, the past year has taught us that policing the digital markets tive deterrent against anti-trust conspiracies that target government remains a high priority for enforcers. agencies. At the same time, the involvement of two or more government www.lexology.com/gtdt 7 © Law Business Research 2020 Global overview Morrison & Foerster LLP

Leniency applications down, credit for compliance up As criminal investigations decline, private litigation thrives One reason cited for the current ebb in global cartel investigations is the Lest companies feel complacent in the absence of large-scale govern- reduction in leniency applications. The boom of ‘amnesty plus’ leniency ment investigations, private litigation into alleged cartel conduct applications that have grown large trees of cartel enforcement appears continues to flourish in jurisdictions spanning the globe. A recent report to be dwindling. Across the globe, international cartel leniency applica- published by the University of San Francisco estimated private anti- tions have shrunk. While in some countries, domestic, smaller collusive trust settlements in the US totalled more than $19 billion between 2013 schemes continue to spark leniency applications; in others, leniency and 2018. These private frequently follow criminal investiga- applications have become rare altogether. One possible explanation for tions. For example, in the wake of the Antitrust Division’s investigation this trend (other than a reduction in cartel conduct) is the heightened into the packaged seafood industry, which resulted in significant fines procedural hurdles companies must clear when coordinating leniency against StarKist Co and Bumble Bee Foods, LLC, the two companies across multiple jurisdictions. Although more jurisdictions offer leni- now face multidistrict litigation comprised of more than 70 consolidated ency, policies can vary greatly and be unpredictable from country to cases. Both companies have already agreed to civil settlements with country. Navigating multiple leniency applications can be difficult and some plaintiffs. The Antitrust Division’s long-running investigation into costly. Another explanation for the decline is the threat of significant the financial industry has similarly resulted in significant settlements exposure from private civil actions for damages, which are increas- with private plaintiffs. More recently, however, the trend has started to ingly common in the US, Europe and elsewhere. While some leniency work in reverse, as the Antitrust Division initiated a criminal probe into programmes offer some protection from civil exposure, others do not, the broiler chicken industry several years after the first claims in private and even where protection is available, it is less than certain. Thus, for litigation were filed. many firms, the risk calculus on leniency has changed. Private litigation claims much of the cartel agenda in other As leniency applications continue to decline, many jurisdictions countries as well, especially as other jurisdictions develop collective have explored alternative ways to incentivise compliance and self- actions. In 2018, John Pecman, the then-Commissioner of Competition reporting, including by awarding credit for compliance programmes for Canada, noted that damages suits following criminal investiga- even after cartel conduct is discovered. In October 2018, Italy’s AGCM tions had become the biggest growth area in anti-trust litigation in the released its Guidelines on Antitrust Compliance, in which it explained country. This is in part explained by Canada’s more permissive class that a company could receive a fine reduction ranging from 5 per cent certification requirements, as a result of which certification has become up to 15 per cent depending on when the compliance programme was practically available just for asking. In the UK, one of the first cases adopted and its effectiveness at detecting violations. In the UK, the CMA to be filed under the country’s new class-action regime was an anti- will consider a discount of up to 10 per cent from a penalty when a trust consumer class action against MasterCard over its swipe fees. In company can demonstrate the adequacy of its compliance programme. April, the Court of Appeal issued a ruling that would open the door to a Australia, Canada, Chile, France, Hong Kong, India and Israel similarly sweeping collective action encompassing the entire universe of people consider the existence of a compliance programme as a mitigating factor. using credit cards. Britain’s Supreme Court announced in July that it The mechanics of presenting a company’s compliance programme and will hear the case, meaning it will likely weigh in on the legal test for the requirements for receiving credit vary from jurisdiction to jurisdic- what kind of competition claims are eligible to use the UK’s collective tion, not unlike leniency programmes themselves. action regime and the correct approach to quantifying the distribution In the US, the Antitrust Division also recently announced that it of an aggregate award when a party is applying for collective proceed- would consider a company’s competition compliance programme at ings status, making this a key case to follow. The Netherlands is also both the charging and sentencing stages in criminal anti-trust investiga- developing as a favourable jurisdiction for broad private claims, and the tions. At the charging stage, companies with comprehensive compliance outcome of Brexit will be closely watched to see whether the UK or the programmes could receive a deferred prosecution agreement, under Netherlands takes greater precedence. which a company may eventually have charges dropped in exchange for meeting certain requirements. At the sentencing phase, an effective Conclusion compliance programme can result in a lower corporate fine and impact Any apparent calm in global cartel enforcement should not be construed the recommendation for probation or a corporate monitor. Unlike the as a time for corporate counsel to be any less vigilant. Counsel should percentages used in other jurisdictions, the precise boundaries of when have greater motivation than ever to make investments in comprehen- and in what amount compliance credit is available are yet to be drawn. sive competition compliance that involves a clearly defined and written This leaves uncertainty as to how high the has been set and how the competition policy, frequent training at every level (and in every depart- policy will be applied in a consistent going forward. ment) of the company, and periodic assessments that evaluate the While the US has joined a growing number of jurisdictions willing company’s business practices for compliance. Each of these compliance to credit imperfect compliance programmes, crediting compliance is far components will become increasingly critical in the evolving enforce- from universal. The EC has indicated that it has no plans to change its ment landscape, both to reduce the risk of government (or private) policy of refusing to credit compliance programmes in the near future, allegations of a company’s involvement in cartel conduct, and as a valu- and countries such as Spain similarly do not provide such credit. One able tool to seek a reduction in penalties should enforcement action be of the potential arguments against doing so is to preserve the value of considered. jurisdictions’ leniency programmes and the benefits afforded leniency applicants. It remains to be seen what effect, if any, sentencing credit * The authors would like to thank Mary Kaiser and Theresa Oehm for has on leniency applications, given that compliance programmes can their contributions to this chapter both enable a company to seek leniency and motivate a company to avoid the burden often associated with leniency if it can still receive credit for a robust compliance programme.

8 Cartel Regulation 2021 © Law Business Research 2020 Argentina

Miguel del Pino and Santiago del Rio Marval O'Farrell Mairal

LEGISLATION AND INSTITUTIONS Likewise, section 2 of the Antitrust Law sets out that certain collu- sive conducts are deemed anti-competitive per se and harmful to the Relevant legislation general economic interest without further analysis. This behaviour 1 What is the relevant legislation? includes the agreements among competitors in which their purpose or effect is: The relevant legislation for cartel prosecution is set out in Antitrust Law • price-fixing; No. 27,442 (the Antitrust Law) enacted on 24 May 2018. Anticompetitive • to establish obligations of: conduct is also regulated by No. 480/2018 (the Decree) and • , distributing, buying or commercialising a Resolution No. 359/2018 of the Secretary of Domestic Trade. limited amount of goods; • to provide a limited number, volume or frequency of Relevant institutions services; and 2 Which authority investigates cartel matters? Is there • market or customer allocation; or a separate prosecution authority? Are cartel matters • . adjudicated or determined by the enforcement agency, a separate or the ? Importantly, under section 29 of the Antitrust Law, companies interested in entering into an agreement that could be considered as anti-compet- The Antitrust Commission is the enforcement agency responsible for itive per se, have the possibility of consulting the Antitrust Commission prosecuting anticompetitive conduct and issuing recommendations about its , demonstrating that the agreement will not cause any to the Secretary of Trade, the ultimate ruling body. For this guide, all harm to the general economic interest and obtain an authorisation to references to the Antitrust Commission will encompass the Secretary of enter into it. Although there are no of the application of this Trade, unless expressly stated. mechanism so far, it is in force and regulated by Decree No. 480/2018. The Antitrust Law created a new antitrust authority, the National Competition Authority, a decentralised and separate body within the Joint ventures and strategic alliances Executive Branch. However, the existing double-tier system comprising 5 To what extent are joint ventures and strategic alliances the Antitrust Commission and the Secretary of Trade will remain in force potentially subject to the cartel laws? until the appointment of the members of the new antitrust authority, which will include three divisions: Joint ventures or strategic alliances between competitors are poten- • the Antitrust Tribunal; tially subject to cartel provisions if they fall under some of the conducts • the Anticompetitive Conduct Secretariat; and prohibited by the Antitrust Law. • the Secretariat. The Antitrust Commission does not have specific guidelines on collaboration agreements between competitors. As such, the following Changes elements should be considered when assessing these activities: 3 Have there been any recent changes, or proposals for change, • Antitrust Commission precedents and general rules of the to the regime? Antitrust Law; • specific guidelines under section 29 of the Antitrust Law; and Since the enactment of the Antitrust Law in 2018, there have been no • foreign referred to by the Antitrust Commission. changes to the regime. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Substantive law 4 What is the substantive law on cartels in the jurisdiction? Application of the law 6 Does the law apply to individuals, corporations and other The substantive law on cartels in Argentina is the Antitrust Law. entities? Section 1 of the Antitrust Law prohibits certain acts relating to the production and exchange of goods and services if they restrict, falsify or Under section 4 of the Antitrust Law, all of its provisions apply to any distort competition, or if they constitute an abuse of a dominant position, individual or , public or private, for-profit or not-for-profit, provided that, in either case, they cause or may cause harm to the general engaged in economic activities within all or part of the country and economic interest. Most of these conducts are neither unlawful as such, those engaged in activities abroad so long as their actions and agree- nor must they cause actual damage; it is enough that the conduct is likely ments affect Argentina. to, or may potentially, cause harm to the general economic interest. www.lexology.com/gtdt 9 © Law Business Research 2020 Argentina Marval O'Farrell Mairal

Extraterritoriality • the facts that support the claim; 7 Does the regime apply to conduct that takes place outside the • a summary of the applicable law; and jurisdiction (including indirect sales into the jurisdiction)? If • for analysing the claim. so, on what jurisdictional basis? Claims may be dismissed in limine if the Antitrust Commission concludes Yes, the provisions set out in the Antitrust Law apply to conduct taking that the alleged infringement does not fall within the legal description of place abroad to the extent that they affect the Argentine market. restrictive practices. Otherwise, the accusation must be notified to the While there are no specific precedents regarding extraterritorial alleged infringer, who must submit explanations and comments within antitrust investigations, analysis of the effects in merger control cases 15 business days. could be used as a guideline. If the explanations are regarded as conclusive or if there is no In this regard, the Antitrust Commission has established a special enough evidence for the claim, the docket may be archived. Otherwise, test to measure the effects that the parties to a foreign-to-foreign trans- the Antitrust Commission must continue the investigation and formally action have in Argentina. This test may be only be applied if the parties notify the alleged infringers, who must file their defence and offer the involved in the foreign-to-foreign transaction have sales or imports evidence to be produced within 20 business days. into Argentina. According to this test, the effects in the local market The Antitrust Commission will fix a term to produce evidence and, of a foreign-to-foreign transaction must be substantial, normal and afterwards, appraise it. Decisions about the evidence produced are final regular, but there is no precise rule to determine the matter. According and may not be challenged. The evidence period is 90 business days and to the Antitrust Commission precedents the effects have been consid- may be extended for the same period. The Antitrust Commission must ered substantial if the exports into Argentina represent a significant issue its final decision within 60 business days. percentage of the total in Argentina of that specific Up to the issuance of the decision, the alleged infringer may product. The effects are regular and normal if the imports have been propose a settlement entailing the immediate or gradual cessation of constant during the preceding three years. However, the matter must the actions which originated the accusation. If the proposal is accepted be analysed on a case-by-case basis. by the Antitrust Commission, the investigation is archived. Applied to anticompetitive practices, those acts carried out abroad, The Antitrust Commission may allow third-party intervention, such but with substantial, normal and regular effects in Argentina, could be as the affected parties, consumer associations and commercial cham- investigated and punished by the Antitrust Law. bers, public authorities and any other person that may hold a legitimate interest in the investigated facts. Export cartels Further, the Antitrust Commission may request non-binding opin- 8 Is there an exemption or defence for conduct that only affects ions on the investigated facts to physical or legal persons, either public customers or other parties outside the jurisdiction? or private. Also, anyone filing a false or scam claim may be subject to the Although it could be argued that export cartels do not fall under the penalties provided under the Antitrust Law. scope of the Antitrust Law, there is no specific case-law confirming Notwithstanding the timeframes set out above, proceedings for this approach. antitrust investigations currently have an average delay of five years, excluding the appeal process before the courts. Industry-specific provisions 9 Are there any industry-specific infringements? Are there any Investigative powers of the authorities industry-specific defences or exemptions? 12 What investigative powers do the authorities have? Is court approval required to invoke these powers? No, there are not. The Antitrust Law provides the Antitrust Commission with several Government-approved conduct standard investigative powers, such as: 10 Is there a defence or exemption for state actions, • the ability to summon witnesses for hearings; government-approved activity or regulated conduct? • examination of books and documents; • the issuance of requests of information to other regulators; As a rule, the Antitrust Law does not distinguish between infringers. • the initiation of ex officio investigations; and In that sense, a state-owned enterprise might be prosecuted for • the execution of dawn raids with a court order. conducting anticompetitive conducts. However, certain conducts might fall outside the scope of the Antitrust Law if they are regulated by INTERNATIONAL COOPERATION another law invoking a public interest standard (eg, legal set out by regulation). Inter-agency cooperation 13 Is there cooperation with authorities in other jurisdictions? INVESTIGATIONS If so, what is the legal basis for, and extent of, such cooperation? Steps in an investigation 11 What are the typical steps in an investigation? The Antitrust Commission has a close relationship in terms of coop- eration with antitrust agencies in other jurisdictions. It has recently The procedure may be initiated either ex officio or by a claim filed by signed a joint statement with Brazil, Chile, Mexico and Peru regarding any physical or legal, private or public, person. Once the claim has been the advantages of the Leniency Programme, which follows the best filed before the Antitrust Commission, the claimant will be summoned practices submitted by the United Nations Conference on Trade and to ratify or rectify it. The claim shall include: Development and the Organization for the Cooperation and Economic • the name and domicile of the claimant; Development. • a specific description of the claim’s purpose;

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Interplay between jurisdictions • the cessation or abstention of conduct to prevent damage, or to 14 Which jurisdictions have significant interplay with your reduce its magnitude, its continuance or aggravation. jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity The notice of appeal must be filed and based with the Antitrust in cross-border cases in your jurisdiction? Commission within the 15 working days after the decision has been served to the parties. The Antitrust Commission must submit the claim In cross-border cases, the Antitrust Commission has historically had and its answer to the within 10 days it was first filed. significant interplay with Latin American countries such as Brazil, When an undertaking appeals to dispute a fine, the fine becomes Chile and Peru. definitive only after it is confirmed. The is protracted, with an average delay of five years. CARTEL PROCEEDINGS SANCTIONS Decisions 15 How is a cartel proceeding adjudicated or determined? Criminal sanctions 19 What, if any, criminal sanctions are there for cartel activity? A cartel proceeding is the same as for other antitrust violations. The Antitrust Commission is the enforcement agency responsible for pros- There are no criminal sanctions in the Antitrust Law. ecuting them and issuing recommendations to the Secretary of Trade. Section 300 of the Argentine Criminal Code sets out imprisonment from six months to two years for price-fixing. We are unaware of any Burden of proof conviction regarding this crime. 16 Which party has the burden of proof? What is the level of proof required? Civil and administrative sanctions 20 What civil or administrative sanctions are there for cartel According to section 2 of the Antitrust Law, hardcore cartels are activity? presumed to be anticompetitive by themselves. For this to be the case, there is a reversal of the burden of proof, and defendants must According to the Antitrust Law, if an infringement is proved, the cessa- demonstrate that the cartel was not implemented or had no effect. tion of the infringing conduct will be ordered and a fine could be imposed Also, they must demonstrate the lack of damages to the general on the perpetrators comprising: economic interest. • up to 30 per cent of the volume of business related to the products Regarding other anticompetitive conduct, the Antitrust or services involved in the unlawful conduct committed, during the Commission analyses them under the ‘’ criteria, weighing last fiscal year, multiplied by the number of years that the conduct the pro-competitive benefits of the practice under analysis against the has lasted, which may not exceed the national consolidated volume anticompetitive damages that they may generate. For this conduct, the of business registered by the economic group of the parties during burden of evidence lies on the claimant or the Antitrust Commission or the last fiscal year; or both if the investigation was initiated ex officio. • up to twice the economic benefit produced by the unlawful conduct committed. Circumstantial evidence 17 Can an infringement be established by using circumstantial If both are applicable, the highest will be imposed. However, if none evidence without direct evidence of the actual agreement? of them is applicable, the fine could be of up to 200 million Adjustable Units. All the amounts set out by the Antitrust Law are fixed in Adjustable The Antitrust Commission can determine an infringement using any Units, adjusted on an annual basis. The latest update of the Adjustable kind of relevant evidence including indirect evidence. However, there Unit stands at 40.61 Argentine pesos. are precedents in which an Antitrust Commission’s decision was over- The fine amount is calculated considering: turned by the courts because it determined the infringement using • the losses suffered by the parties harmed by the anticompetitive solely indirect evidence such as testimonial evidence. behaviour; • the benefit obtained by all involved parties in the anticompeti- Appeal process tive conduct; 18 What is the appeal process? • the deterrence effect, the value of the involved parties’ assets at the time of the infringement; Regarding the appellate body, the Antitrust Law creates the Special • the size of the affected market; Antitrust Room corresponding to the Civil and Commercial Federal • the duration of the anticompetitive conducts; and Court of Appeals that will decide on the issue. Currently, any room of • the infringer’s background and economic capacity. the Civil and Commercial Federal Court of Appeals is competent given that the Special Antitrust Room is yet to be constituted. According to In determining the fine, the Antitrust Law sets that it should consider the Antitrust Law, the appellate body must apply the National Code of circumstances that lead to an increase or a reduction of the basic to the appeal process. amount, considering aggravating and mitigating circumstances on An appeal can be brought against any decision issued by the that amount. If the infringer cooperates with the Antitrust Commission Antitrust Commission when they order: during the antitrust proceedings, the cooperation may be considered a • the imposition of sanctions; mitigating circumstance in the calculation of the fine. The commonest • the cessation or abstention of an anticompetitive practise; aggravating circumstance is recidivism, which can reach up to 100 per • the conditioning or rejection of the approval of a transaction; cent of the amount of the penalty, to dissuade companies. • the rejection of the claim; The fine can also be set up jointly with the directors, managers, • the rejection of the application of the Leniency Programme; and administrators and supervisory members of the infringing company or www.lexology.com/gtdt 11 © Law Business Research 2020 Argentina Marval O'Farrell Mairal

its parent company that had caused the anticompetitive conduct either practice and issued an opinion, courts have relied on the findings of by their action or inaction. the regulator, and have only focused on the link between the already Under the Antitrust Law, infringers may also be excluded from proven conduct and the claim for damages rather than retracing the the National Register of State Suppliers for a maximum period of five investigation. years. In the case of bid rigging, the exclusion may be ordered for up to eight years. PRIVATE RIGHTS OF ACTION Section 64 of the Antitrust Law contemplates a civil fine (punitive damages) in favour of the injured party that will be determined by the Private damage claims competent judge and that will be graduated according to the serious- 26 Are private damage claims available for direct and indirect ness of the event and other circumstances of the case, regardless of purchasers? Do purchasers that acquired the affected other corresponding compensation. product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the Guidelines for sanction levels prices they paid (‘umbrella purchaser claims’)? What level of 21 Do fining or sentencing principles or guidelines exist? If yes, damages and cost awards can be recovered? are they binding on the adjudicator? If no, how are penalty levels normally established? What are the main aggravating According to section 62 of the Antitrust Law, any individual or legal and mitigating factors that are considered? entity suffering damage from any conduct or act prohibited under the Antitrust Law has the right to file a private action for damages under the There are no guidelines regarding penalties. provisions. Damages can be requested under the provisions outlined in article Compliance programmes 1716 of the Civil and Commercial Code, which states that a violation of 22 Are sanctions reduced if the organisation had a compliance the duty of not causing damage to another person gives rise to compen- programme in place at the time of the infringement? sation for the damage. The basic rule derived from the provision is that whoever causes damage intentionally or due to negligence is liable to There is no specific provision and this has not been analysed in a public the damaged party. Those actions are ruled by the Civil and Commercial . Code and must be filed before the competent courts (civil and commer- cial federal courts at a national level or federal court in the provinces) Director disqualification within the jurisdiction of the defendant’s domicile. 23 Are individuals involved in cartel activity subject to orders Therefore, private damages claims are available for both direct and prohibiting them from serving as corporate directors or indirect purchasers, including final consumers. officers? The Antitrust Law does not expressly regulate the existence of pass-on defences; however, the matter has been analysed by the courts The court may order a disqualification from doing business for a term of in one precedent so far (Auto Gas SA c/ YPF SA y otro s/ ordinario, one to 10 years against the individuals involved in cartel activity. 2009). In that case, the appellate court contemplated the pass-on defences invoked by the accused party and only accepted 30 per cent of Debarment the alleged damages regarding that specific matter because it consid- 24 Is debarment from government procurement procedures ered that the remainder had been borne by the final customers. automatic, available as a discretionary sanction, or not The affected parties of illegal conduct under the Antitrust Law available in response to cartel infringements? may request three types of damages compensation that is not mutually exclusive, namely: The Antitrust Law does not establish debarment from government • actual damages; procurement in response to cartel infringements. • recovery for loss of goodwill; and • moral hardship. Parallel proceedings 25 Where possible sanctions for cartel activity include criminal In principle, the injured party is only able to request full compensation and civil or administrative penalties, can they be pursued from the party that causes the damage through an anticompetitive prac- in respect of the same conduct? If not, when and how is the tice. The link between the damage and the anticompetitive practice must choice of which sanction to pursue made? be proved for compensation to be granted. Under section 65 of the Antitrust Law, all responsible companies Yes, parallel proceedings (criminal and civil) may be pursued in respect will be jointly liable for the payment of the damages or fines. Therefore, of the same conduct. infringers are responsible regarding victims for the whole harm caused According to Argentine civil legislation, any person who has by the antitrust violation, regardless of the recovery actions that may suffered damage arising from anticompetitive practices prohibited by apply. However, infringers who obtained immunity from fines as a result the Antitrust Law is entitled to file a suit for damages before the compe- of the Leniency Programme will be liable to its direct or indirect buyers tent court. or suppliers, and any other injured parties, only when the full repara- To be entitled to file a suit for damages arising from anticompeti- tion of the damages of the conduct could not be obtained from the other tive practices, the prior intervention of the Antitrust Commission is not companies involved in the same anticompetitive conduct. necessary. However, in those cases where the regulator has already analysed the matter, the resolution issued by the Antitrust Commission once it becomes final acts as res judicata. The Antitrust Commission is not part of the proceedings gener- ated by the private action unless expressly requested by the court. If, however, the Antitrust Commission has investigated the anticompetitive

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Class actions reduction of the sanction or fine that would otherwise be applicable for 27 Are class actions possible? If so, what is the process for such being part of the first anticompetitive conduct. cases? If not, what is the scope for representative or group Additionally, the Antitrust Law specifically sets out that there cannot actions and what is the process for such cases? be a joint application to the Leniency Programme by two infringing parties involved in the same anticompetitive conduct. However, the infringing Under section 43 of the Argentine , class actions may be legal entity and its directors, managers, administrators, trustees or submitted by the affected person, the ombudsman and associations members of the Supervisory Board, agents or legal representatives authorised by law. Both active and passive legitimation in these cases is may apply jointly if each of them complies with the Leniency Programme quite broad and covers both victims and consumer associations. requirements. Provided that the Antitrust Commission granted immu- Even in the presence of typically individual rights, collective actions nity or leniency according to the requirements set out in the Antitrust will also be available when there is a strong public interest in their Law, immunity will be extended for the criminal prosecution of current or protection, either because of their social relevance or because of the former employees and directors for committing anticompetitive conduct. special characteristics of the affected parties. The Argentine Supreme Court, in a leading case in this matter, Approaching the authorities identified the requirements that must be met to bring a collective 31 Are there deadlines for initiating or completing an application action, namely: for immunity or partial leniency? Are markers available and • the existence of a common factual cause that causes injury to a what are the time limits and conditions applicable to them? significant number of individual rights; • the claim must be focused on the collective effects of the cause and Leniency applicants can complete their applications for immunity during not on what each individual might seek; and a pre- stage, before being served with the Statement of Objection. • a demonstration that individual actions are not justified, which Markers are available and the Antitrust Commission will determine the could affect access to justice. reduction amount taking into consideration the chronological order in which the request was filed. COOPERATING PARTIES Cooperation Immunity 32 What is the nature, level and timing of cooperation that is 28 Is there an immunity programme? If so, what are the basic required or expected from an immunity applicant? Is there any elements of the programme? What is the importance of being difference in the requirements or expectations for subsequent ‘first in’ to cooperate? cooperating parties that are seeking partial leniency?

The Antitrust Law establishes the Leniency Programme, setting out two Cooperation must be full, continuous and diligent. The applicant must different scenarios for infringing parties; namely, an exemption scenario cooperate from the moment of application submission until the end of and a reduction scenario, both based on a race-to-the-door structure. the investigation and is required for both the first petitioner and subse- For the full exemption to apply, the petitioner must: quent cooperation parties. • be the first among those involved in the conduct to apply and provides the Antitrust Commission with information and evidence; Confidentiality • immediately cease the performance of the infringing conduct; 33 What confidentiality protection is afforded to the immunity • cooperate with the Antitrust Commission during the proceedings; applicant? Is the same level of confidentiality protection • not destroy evidence of anticompetitive behaviour; and applicable to subsequent cooperating parties? What • not disclose its intention to adhere to the benefit. information will become public during the proceedings and when? Subsequent cooperating parties 29 Is there a formal programme providing partial leniency for The Antitrust Commission assures the confidentiality of the identity of parties that cooperate after an immunity application has been the leniency applicant. in the judicial proceedings that may be made? If so, what are the basic elements of the programme? initiated under the provisions of the Antitrust Law, cannot order the If not, to what extent can subsequent cooperating parties disclosure of the statements, acknowledgements, information or other expect to receive favourable treatment? means of evidence submitted to the Antitrust Commission. If the judges reject the application for the Leniency Programme, the If the petitioner is not the first to apply for the Leniency Programme, it application could not be considered as recognition or confession by the may be eligible for a reduction of between 50 per cent to 20 per cent of applicant of the illegality of the conduct or the facts disclosed. Rejected the fine if it provides additional evidence to the investigation. The filing requests cannot be disclosed. can be made at any time until the Statements of Objections is served on the parties. Settlements 34 Does the investigating or prosecuting authority have the Going in second ability to enter into a plea bargain, settlement, deferred 30 How is the second cooperating party treated? Is there an prosecution agreement (or non-prosecution agreement) or ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, other binding resolution with a party to resolve liability and how does it operate? penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? The Antitrust Law includes a ‘leniency plus’ provision, meaning those parties not complying with the Leniency Programme requirements, but Before the Antitrust Commission issues its final decision, the alleged during the proceedings disclose or recognise another different coordi- infringer may commit itself to the immediate or gradual cessation of nated conduct, can obtain an exemption on the latter, and a one-third the actions for which it is being investigated or to the amendment of www.lexology.com/gtdt 13 © Law Business Research 2020 Argentina Marval O'Farrell Mairal

the aspects related to it. The commitment must be approved by the Multiple corporate defendants Antitrust Commission for the procedure to be suspended. The Antitrust 39 May counsel represent multiple corporate defendants? Does Law also provides that the docket will be archived if, after three years of it depend on whether they are affiliated? the fulfilled commitment, there is no relapse. Yes, counsel may represent multiple corporate defendants regardless Corporate defendant and employees of whether they are affiliated. 35 When immunity or partial leniency is granted to a corporate defendant, how will its current and former employees be Payment of penalties and legal costs treated? 40 May a corporation pay the legal penalties imposed on its employees and their legal costs? Current and former employees involved in the infringement to be bene- fited by the Leniency Programme must also apply to it and comply with Neither the Antitrust Law nor its regulation forbids a company to pay its requirements together with the legal entity. The compliance of these either the fines imposed on its employees or their legal costs. requirements shall each be analysed to receive the benefit. Taxes Dealing with the enforcement agency 41 Are fines or other penalties tax-deductible? Are private 36 What are the practical steps for an immunity applicant damages payments tax-deductible? or subsequent cooperating party in dealing with the enforcement agency? Under section 227 of the Regulatory Decree of the Income , administrative fines and penalties are not deductible from income tax. Under the Antitrust Law, the procedure must comprise four Tax-deduction for private damages payments must be analysed on stages, namely: a case-by-case basis. • marker request; • a leniency application; International double jeopardy • preliminary qualification of the benefit; and 42 Do the sanctions imposed on corporations or individuals take • definitive granting of the benefit. into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in Currently, the Antitrust Commission is drafting guidelines regarding the other jurisdictions taken into account? implementation of the Leniency Programme. The Antitrust Law has not introduced any provisions to prevent interna- DEFENDING A CASE tional double jeopardy.

Disclosure Getting the fine down 37 What information or evidence is disclosed to a defendant by 43 What is the optimal way in which to get the fine down? the enforcement authorities? The optimal way is applying to the Leniency Programme. Also, the Under the Antitrust Law, all the dockets pending before the Antitrust Antitrust Law establishes as a mitigating circumstance the coopera- Commission are secret, and only the parties can access them. tion with the investigation during the proceedings, outside the scope of When a private claim is filed before the courts and the opinion of application of the Leniency Programme and beyond its legal obligation the Antitrust Commission is used, it should not contain sensitive infor- to cooperate. mation, and parties can request confidentiality if any trade secret or Likewise, a solid defence based on economic analysis (eg, economic other confidential information is disclosed in the opinion. The request reports by independent consultants) may work as a powerful argument should provide the reasons, and a non-confidential version of the to convince the Antitrust Commission to get the fine down. submitted information should be included. Importantly, several cartel cases are dismissed because of the Further, according to section 6 of Law No. 23,187, it is a specific expiration of the five-year statute of limitations. obligation for to preserve the attorney-client privilege unless otherwise authorised by the interested party (ie, the client). Likewise, UPDATE AND TRENDS section 7 provides that it is a right of the lawyers to keep confidential information protected under attorney-client privilege. Likewise, section Recent cases 444 of the Argentine Civil and Commercial Procedural Code provides 44 What were the key cases, judgments and other developments that a witness may refuse to answer a question if the answer would of the past year? entail revealing information protected under a professional secret (ie, including attorney-client privilege). The most relevant currently ongoing cartel case is Notebooks. Mr Centeno, who worked with high-level government officials, kept a record Representing employees of an organised corruption scheme in his notebooks that included details 38 May counsel represent employees under investigation in of bribes and locations, which included several businessmen from large addition to the corporation that employs them? When should companies benefitting from large public contracts between 2005 and 2015. a present or past employee be advised to obtain independent As a result of the criminal investigation, the Antitrust Commission legal advice or representation? initiated an investigation on bid rigging allegations and requested the involved parties to provide explanations, which are still under review. There is no provision that forbids to represent both employees Because of this case, the Organization for the Cooperation and and the corporation that employs them. Economic Development issued guidelines and recommendations in 2019 to fight bid rigging in the procurement of public works in Argentina.

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Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

The only ongoing guidelines concern the implementation of the Leniency Programme.

Coronavirus Miguel del Pino [email protected] 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct Santiago del Rio have been implemented by the government or enforcement [email protected] authorities to address the pandemic? What best practices are advisable for clients? Alem 882 Ciudad Autónoma de Buenos Aires Regarding antitrust regulations, there is no substantial emergency Argentina legislation or guidelines in response to the covid-19 pandemic. Tel: +54 11 4310 0100 There has been no official communication about a possible inap- www.marval.com plicability or suspension of the Antitrust Law. Conversely, the measures dictated by the government tend to reinforce controls and its enforce- ment in health-related industries. In this regard, companies should review their business practices and agreements to avoid possible anticompetitive risks and be subject to further investigations by the authority.

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Fiona Crosbie, Rosannah Healy and Ted Hill Allens

LEGISLATION AND INSTITUTIONS • the cartel provision is reasonably necessary for under- taking the joint venture; and Relevant legislation • the joint venture is not being carried on for the purpose of 1 What is the relevant legislation? substantially lessening competition; and • increasing the standard of proof so a party wishing to rely on Australia’s competition legislation is the Competition and Consumer Act the exception must prove the relevant matters ‘on the balance 2010 (Cth) (CCA). The cartel provisions are contained in Part IV, Division 1. of probabilities’ (previously, a party only needed to produce evidence of ‘a reasonable possibility’ that relevant matters exist, Relevant institutions in which case the onus would switch to the ACCC or prosecution). 2 Which authority investigates cartel matters? Is there a separate prosecution authority? Are cartel matters adjudicated Prior to its repeal, subsection 51(3) of the CCA provided a limited exemp- or determined by the enforcement agency, a separate tribunal tion for certain conduct relating to rights, including or the courts? conditional licensing and assignment of , registered designs, trademarks and copyright (Treasury Laws Amendment (2018 Measures The Australian Competition and Consumer Commission (ACCC) inves- No. 5) Act 2019). With effect from 13 September 2019, this exemption tigates alleged cartel conduct and determines whether to bring civil ceased. This means that conduct associated with intellectual property proceedings. The ACCC can also refer serious cartel conduct to the rights is treated in the same way as other conduct. Commonwealth Director of Public Prosecutions (CDPP) for criminal prosecution. Substantive law Ultimately, it is the Federal Court of Australia (or the Supreme Court 4 What is the substantive law on cartels in the jurisdiction? of an Australian state in criminal cases) that determines whether there has been a contravention of the civil or criminal cartel provisions and the It is a civil and criminal offence to make or give effect to a contract, appropriate sanctions and penalties. arrangement or understanding between actual or potential competitors that contains a ‘cartel provision’. Cartel conduct is per se prohibited, Changes regardless of the impact on competition. 3 Have there been any recent changes, or proposals for change, A cartel provision is a provision that has: to the regime? • the purpose or effect of fixing, controlling or maintaining the price of goods or services supplied or acquired by any or all of the parties; or The CCA was amended in November 2017 by the Competition and • the purpose of: Consumer (Competition Policy Review) Amendment Act 2017 (CPR • preventing, restricting or limiting production, capacity, supply Amending Act). The CPR Amending Act: or acquisition of goods or services by any or all of the parties; • clarifies that cartel conduct must take place in ‘trade or commerce’ • allocating customers, suppliers or territories supplied or (ie, within Australia or between Australia and places outside acquired by any or all of the parties; or Australia); • rigging bids. • repeals the per se prohibition on exclusionary provisions and expands the definition of ‘output restriction’ in the prohibition against To establish criminal liability, the elements of the offence must be proven cartel conduct to cover restrictions on acquisition (in addition to to the criminal standard of beyond reasonable doubt. It is not necessary restrictions on production, capacity and supply); and to show dishonesty or that the parties knew it was cartel conduct or • amends the joint venture exception to cartel conduct by: illegal. The prosecution must, however, prove that: • extending the exception so it more clearly applies to joint • the parties made and/or gave effect to a contract, arrangement or ventures for the acquisition of goods or services (in addition to understanding intentionally; and joint ventures for the production or supply of goods or services); • the parties knew or believed that the contract, arrangement or • broadening the exception so it applies to a provision contained understanding contained a cartel provision (which requires that in an arrangement or understanding (in addition to a provision they have knowledge or belief of the facts making up each of the contained in a contract); elements of the cartel provision). • imposing additional requirements on the party wishing to rely on the exception. In addition to demonstrating that the cartel If a company is a party to a contract, arrangement or understanding provision is ‘for the purposes of’ the joint venture, a party is now containing a cartel provision, then related bodies corporate are also required to demonstrate that: deemed to be a party to the contract, arrangement or understanding.

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Joint ventures and strategic alliances Industry-specific provisions 5 To what extent are joint ventures and strategic alliances 9 Are there any industry-specific infringements? Are there any potentially subject to the cartel laws? industry-specific defences or exemptions?

Joint ventures and strategic alliances are subject to the cartel laws A class exemptions power was introduced into the CCA in November unless they can rely on the joint venture exception or one of the other 2017 under section 95AA. This power enables the ACCC to specify that cartel exceptions. The joint venture exception to the prohibition on cartel one or more provisions of Part IV of the CCA do not apply to certain conduct applies where: conduct, in effect providing a ‘safe harbour’ for the businesses covered • the joint venture is for the production of goods or the supply or by the exemption. The ACCC must be satisfied that the specified conduct acquisition of goods or services; does not substantially lessen competition or that it is likely to result in • the cartel provision is for the purposes of, and is reasonably neces- a net public benefit. sary for undertaking, the joint venture; The first class exemption being proposed by the ACCC would allow • the joint venture is carried on jointly by the parties to the contract, eligible small businesses to collectively negotiate with customers or arrangement or understanding containing the cartel provision; and suppliers. This proposal is still under consideration with a consultation • the joint venture is not carried on for the purpose of substantially open on the draft legislative instrument. lessening competition. The ACCC also recently commenced consultation on a class exemption for ocean carriers providing international liner ship- APPLICATION OF THE LAW AND JURISDICTIONAL REACH ping services. Currently, exemptions apply to registered liner shipping agreements under Part X of the CCA however the introduction of a class Application of the law exemption would allow for certain classes of conduct to be exempt 6 Does the law apply to individuals, corporations and other without the need for application or registration. entities? Government-approved conduct The prohibitions against cartel conduct apply to individuals and corpo- 10 Is there a defence or exemption for state actions, rations. The Competition and Consumer Act 2010 (Cth) (CCA) also government-approved activity or regulated conduct? applies to government entities to a certain extent, where they carry on a business. Part IV of the CCA binds the Crown in right of the Commonwealth and the States and Territories and local government bodies insofar as they Extraterritoriality carry on a business. 7 Does the regime apply to conduct that takes place outside the However, the Crown in the right of the Commonwealth and the jurisdiction (including indirect sales into the jurisdiction)? If States and Territories cannot be found liable for pecuniary penalties or so, on what jurisdictional basis? be prosecuted criminally. In addition, there is a general exemption for conduct specified in Australian competition law applies to conduct that occurs outside and authorised by federal, state or territory legislation. In effect, this Australia only if that conduct is carried on by: enables governments to approve specific activities as exempt from • companies incorporated or carrying on business within Australia; competition laws by passing legislation. • Australian citizens; or • persons ordinarily resident in Australia. INVESTIGATIONS

The law in relation to carrying on business in Australia is compli- Steps in an investigation cated. However, it is quite likely that a foreign parent company will be 11 What are the typical steps in an investigation? considered to be carrying on business in Australia where an Australian subsidiary acts on its behalf as an agent. Further, where a foreign The Australian Competition and Consumer Commission (ACCC) is company communicates by means of telecommunication such as fax, responsible for investigating both civil and criminal cartel conduct email, letter or telephone to officers of its Australian subsidiaries (and (although the decision to prosecute criminal cartel activity is a matter the communication was expected to be and was received in Australia), for the Commonwealth Director of Public Prosecutions (CDPP)). The the conduct can be regarded as taking place in Australia. ACCC has significant discretion as to the timing and conduct of an inves- In addition, the prohibition on cartel conduct will only be breached tigation. Investigations may take months or years depending on the where the parties are in competition with each other in trade or conduct being investigated. commerce within Australia, or between Australia and places outside Parties to the alleged conduct will usually be asked to provide Australia. information, produce documents and appear before the ACCC to answer questions. The ACCC may do this on a voluntary basis but will more Export cartels typically use its evidence-gathering powers under section 155 of the 8 Is there an exemption or defence for conduct that only affects Competition and Consumer Act 2010 (Cth) (CCA). customers or other parties outside the jurisdiction? Once the ACCC has obtained sufficient evidence, it will form a view as to whether a contravention has occurred. If the ACCC considers that There is an exception for cartel provisions that relate exclusively to there has been a contravention, it can: the export of goods or services from Australia. For the exception to • refer the matter to the CDPP for possible criminal prosecution apply, full and accurate details of the provision must be submitted to (serious cartel offences); the Australian Competition and Consumer Commission (ACCC) within • commence civil litigation in the Federal Court seeking penalties, 14 days of the relevant contract, arrangement or understanding being injunctions and other remedies; or entered into. • in less serious cases, resolve the investigation by accepting commitments from the individual or company to cease the conduct www.lexology.com/gtdt 17 © Law Business Research 2020 Australia Allens

and take steps to ensure that it does not recur. This could be in The ACCC has a broad discretion to disclose protected information correspondence, by agreement or by way of an enforceable under- (ie, information provided to the ACCC in the course of an investiga- taking under section 87B of the CCA. tion) to foreign regulators and does not require a waiver to disclose the information. In practice, the ACCC usually requests a waiver from In practice, cartel matters are generally resolved through court an immunity applicant before disclosing their information to a foreign proceedings. regulator. The time between the commencement of an investigation and any court proceedings by the ACCC (or the CDPP) varies depending on the Interplay between jurisdictions complexity of the investigation. Penalty proceedings may be brought at 14 Which jurisdictions have significant interplay with your any time within six years after the contravention occurs. In practice, it is jurisdiction in cross-border cases? If so, how does this affect often several years before investigations are brought to their conclusion. the investigation, prosecution and penalising of cartel activity in cross-border cases in your jurisdiction? Investigative powers of the authorities 12 What investigative powers do the authorities have? Is court The ACCC regularly investigates and takes enforcement action in rela- approval required to invoke these powers? tion to alleged cartel conduct that has cross-border aspects. Recent examples include the ACCC’s proceedings against companies in the The ACCC has broad investigatory powers under the CCA. electrical cable, international shipping, international currency and air Under section 155, where the ACCC has reason to believe that a cargo industries. person can provide information or documents relating to a matter that International cooperation assists the ACCC with cross-border constitutes or may constitute a contravention of the CCA, the ACCC can matters in a number of ways, most particularly through the exchange require that person to produce information or documents or appear of information about the conduct of concern. This information may before the ACCC to give evidence on oath or affirmation. The ACCC trigger the ACCC’s investigation in the first place or assist the ACCC to cannot issue a section 155 notice after it has instituted proceedings, progress the investigation more efficiently than would otherwise have unless it is seeking an interlocutory injunction. Failing to comply with been possible. a section 155 notice or providing false or misleading information is a criminal offence subject to fines (and prison terms for individuals). The CARTEL PROCEEDINGS ACCC is not required to obtain court approval before issuing a section 155 notice. Decisions The ACCC also has the power to enter premises to conduct 15 How is a cartel proceeding adjudicated or determined? searches and to seize documents where the ACCC has reasonable grounds to believe that there is evidentiary material on the premises Civil and criminal cartel cases are heard by the Federal Court of that is relevant to a contravention of the CCA. The ACCC must obtain a Australia (or sometimes the Supreme Court of a state or territory in search warrant from a or the consent of the occupier before criminal cases). entering the premises. Civil proceedings are commenced when the applicant files an origi- In criminal cartel investigations conducted jointly by the ACCC and nating application. From there if the respondent does not admit liability the Australian Federal Police (AFP), the AFP can apply for a warrant and contests the matter, the case will go to a civil trial on liability. The from a magistrate to intercept telephone conversations or place a usual pretrial steps will be undertaken, including the exchange of listening device to record conversations. The ACCC can also apply for a relevant documents through discovery and filing of written evidence warrant to access emails, text messages and such like stored on equip- (usually through affidavits and supporting documentation). The matter ment operated by a telecommunications company or internet service then proceeds to a hearing where witnesses and experts may be subject provider in a criminal or civil investigation. to cross-examination and the parties make submissions in support of their case. If the court finds that the offences have been proved, it will INTERNATIONAL COOPERATION make declarations of contravention, and a further hearing takes place to determine the appropriate penalty. Inter-agency cooperation If the respondent admits liability, the parties will file an agreed 13 Is there cooperation with authorities in other jurisdictions? statement of facts and admissions with the court and potentially also If so, what is the legal basis for, and extent of, such a suggested penalty. cooperation? Criminal proceedings are commenced when the CDPP lays charges and a court attendance notice or summons is sent to the defendant and The ACCC regularly coordinates with international agencies, including filed with the court. From there, a pre-trial committal process takes to assist in cross-border investigations. place before a magistrate. The committal process differs between juris- The ACCC is a member of the International Competition Network, dictions in Australia. In some jurisdictions, the magistrate decides if which provides competition authorities with an informal venue for main- there is sufficient evidence for the matter to proceed to a criminal trial. taining regular contacts and addressing practical competition concerns. In other jurisdictions, the matter can proceed to trial on the basis of In addition, there are a number of formal agreements that provide for a prosecution certification. In either case, at the end of the committal, cooperation and communication between the ACCC and foreign regula- a defendant will enter a formal plea of guilty or not guilty. During the tors. For example, Australia is party to a treaty with the United States that committal process, the CDPP will provide the defendant with a brief of allows both countries to cooperate, provide assistance and exchange evidence containing both material on which the CDPP proposes to rely information in competition law and antitrust enforcement actions. The and other material relevant to the defence. ACCC is also party to a number of agreements and memoranda of If the defendant pleads guilty, the matter is committed for understanding with various authorities including regulators in Canada, sentencing in the Federal Court or the Supreme Court of the relevant China, the European Union, Fiji, India, Japan, Korea, , Papua state or territory. The defendant would be sentenced by the judge taking New Guinea, Philippines, the United States, and the United Kingdom. into account a range of factors.

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If the defendant pleads not guilty, the matter is committed for trial • where the benefits cannot be determined, 10 per cent of the corpo- in the Federal Court or the Supreme Court of the relevant state or terri- rate group’s annual turnover connected to the supply of goods and tory. The CDPP then files an indictment listing the relevant charges. The services in Australia in the preceding 12 months. next step involves the CDPP filing a notice of the prosecution’s case. In response, the defendant would file a notice of the accused’s case. The The court can also impose injunctions. CDPP is subject to ongoing duties of disclosure. In most cases, a number There have been three criminal cartel convictions in Australia since of pre-trial hearings may occur. The trial will be conducted before a jury the criminal provisions were introduced in 2009: and evidence from the prosecution and any defence witnesses will be • in 2017, Japanese cargo shipping liner NYK plead guilty to criminal given orally. If the defendant is found guilty by the jury, the judge would cartel conduct and was fined A$25 million; then sentence the defendant. • in 2018, another Japanese shipping company, Kawasaki Kisen Kaisha (K-Line), plead guilty to criminal cartel conduct and was Burden of proof fined A$34.5 million; and 16 Which party has the burden of proof? What is the level of • in 2020, Wallenius Wilhelmsen Ocean AS, a Norwegian-based proof required? global shipping company, plead guilty to criminal cartel conduct, however, is yet to be sentenced. The party alleging the cartel conduct has the burden of proving its case. In civil cases, the conduct must be proved on the balance of prob- Criminal charges have also been laid against: abilities. In criminal cases, the prosecution must prove its case beyond • Country Care Group, a manufacturer of healthcare equipment, as reasonable doubt. well as its managing director and a former employee; • Australia and New Zealand Banking Group, Citigroup and Deutsche Circumstantial evidence Bank, as well as six senior executives from the banks; 17 Can an infringement be established by using circumstantial • the Construction, , Maritime, and Energy Union, as evidence without direct evidence of the actual agreement? well as a divisional branch secretary; and • Vina Money Transfer, a money transfer business, as well as five A contravention can be proved by direct evidence, circumstantial individuals involved in the business. evidence or a combination of both. Arrangements and understandings can be inferred from circumstantial evidence; however, the requirement Civil and administrative sanctions for there to be a consensus or a meeting of the minds must still be 20 What civil or administrative sanctions are there for cartel discharged. The party relying on circumstantial evidence must show activity? that the circumstances give rise to a more probable inference of the existence of an arrangement or understanding than not. For individuals, the maximum civil penalty is A$500,000 per offence. For companies, the maximum civil penalties are the same as for Appeal process criminal cartel provisions. 18 What is the appeal process? In August 2019, the Australian Competition and Consumer Commission (ACCC) chairman stated that the ACCC’s desire for more The full Federal Court (usually constituted of three judges) hears significant penalties as an active deterrent for both companies and indi- appeals on points of law from a decision of a single judge of the Federal viduals, has been a long standing one. Court. Parties may appeal full Federal Court decisions to the High Court The highest penalty imposed under the cartel laws was a A$46 if it grants special leave. million penalty paid by Japanese-based automotive parts supplier The ACCC or the defendant can initiate an appeal by filing a notice Yazaki Corporation in 2018, which was increased on appeal from an that outlines the relevant grounds of appeal. Appeals are confined to original penalty of A$9.5 million. The ACCC’s action followed similar points of law and do not involve a re-examination of the facts. enforcement actions against Yazaki and other cartel participants by In criminal cartel cases, the defendant may appeal: competition regulators in the United States and Japan. • on a point of law; The next highest penalty imposed under the cartel laws was • if the jury is unreasonable or unable to be supported by the a A$36 million fine paid by packaging company Visy in 2007 for evidence; or civil contraventions in relation to a cartel involving rival packaging • if there was a substantial miscarriage of justice. company Amcor. This was followed by a class action in which 4,500 businesses were awarded total damages of A$95 million against the SANCTIONS companies.

Criminal sanctions Guidelines for sanction levels 19 What, if any, criminal sanctions are there for cartel activity? 21 Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty For individuals, the maximum criminal penalty is 10 years’ imprison- levels normally established? What are the main aggravating ment, a fine of A$420,000 per offence, or both. Individuals can also be and mitigating factors that are considered? subject to orders disqualifying them from managing a corporation, and community service orders. Civil penalties For companies, the maximum fine for each criminal cartel offence The court must consider all relevant matters when determining the is the greater of: appropriate pecuniary penalty. Relevant factors include: • A$10 million; • the nature, extent, duration and deliberateness of the conduct; • three times the total benefits that have been obtained and are • any loss or damage caused by the conduct; reasonably attributable to the commission of the offence; or • prior contraventions; • general and specific deterrence; www.lexology.com/gtdt 19 © Law Business Research 2020 Australia Allens

• the size of the company and the degree of ; a compliance programme or culture of compliance by the company. • whether the conduct was carried out by senior management or at However, in the recent case of ACCC v Nippon Yusen Kabushiki Kaisha a lower level; (NYK), NYK was fined $25 million for its involvement in an international • the corporate culture of the company, as evidenced by educational cargo shipping cartel. The fine of $25 million incorporated a significant programmes and internal compliance measures; and discount of 50 per cent which in part reflected the fact that NYK demon- • contrition and cooperation with the ACCC. strated that it had rehabilitated itself (or demonstrated prospects of rehabilitation) including by changing its corporate culture of compli- Criminal penalties ance, showing contrition, demonstrating a commitment to comply fully In sentencing offences for criminal cartel conduct, the court takes into with competition law and policy, and establishing systems, programmes account a range of factors including: and structures to prevent reoffending (eg, resignations and salary • the nature and circumstances of the offence; reductions for those involved in the contravention). • the extent to which the conduct was deliberate, systematic There is no regulation or precedent on the extent to which and covert; a compliance culture or programme will be relevant in determining • the duration and scale of the offending conduct; third party damages actions in competition law cases. • the seniority of the employees involved, the corporate culture of the company and any compliance programmes; Director disqualification • the profit or benefit attributable to the conduct; 23 Are individuals involved in cartel activity subject to orders • whether the offences constitute a single course of conduct; prohibiting them from serving as corporate directors or • the personal circumstances of any victim, and any loss or damage officers? caused by the conduct; • any cooperation, including past and future cooperation, with the The Competition and Consumer Act 2010 (Cth) (CCA) allows the court ACCC and law enforcement; to make an order disqualifying an individual from managing a corpora- • the degree to which the defendant has taken measures to ensure tion when they have been involved in a cartel. Both the ACCC and the future compliance; Commonwealth Director of Public Prosecutions (CDPP) can seek the • any contrition shown and the prospects of rehabilitation; imposition of a disqualification order. • specific and general deterrence; In assessing the length of the disqualification, the court • the need to adequately punish the defendant; will consider: • character and previous conduct; and • whether the conduct was of a serious nature (such as those • any early guilty plea. involving dishonesty); • the likelihood that the individual will re-offend; and Compliance programmes • the level of harm that may be caused to the public. 22 Are sanctions reduced if the organisation had a compliance programme in place at the time of the infringement? Debarment 24 Is debarment from government procurement procedures In Australia, one of the factors relevant to the court’s decision to impose automatic, available as a discretionary sanction, or not civil penalties for an infringement of the CCA is whether the company available in response to cartel infringements? has a corporate culture conducive to compliance with the CCA and takes corrective measures in response to an acknowledged contravention. Debarment is not a recognised sanction. However, if the ACCC applies Accordingly, the existence and scope of implementation of a compliance to the court for an injunction, the court has broad powers to grant the programme will be a relevant factor in considering the level of a civil injunction on any terms that the court determines to be appropriate. In penalty to be imposed on a company for a contravention of the CCA. addition, government procurement processes often require disclosure There is no rule about the required components of the policy or the of regulatory breaches or convictions and these matters may be taken extent to which this will be taken account in setting or discounting the into account by government in evaluating the suitability of bidders. penalty (ie, the quantum or the percentage of any discount) – rather, the assessment will depend on the surrounding facts. Parallel proceedings The court will examine whether there is a substantial compliance 25 Where possible sanctions for cartel activity include criminal programme in place which was actively implemented and whether the and civil or administrative penalties, can they be pursued implementation was successful (ie, whether the contravention was an in respect of the same conduct? If not, when and how is the isolated incidence). That is, was the compliance policy ‘one to which choice of which sanction to pursue made? mere lip-service’ was paid. Other relevant factors include: • whether the programme was regularly updated and involved There are some limitations on the commencement of both criminal and employees attending training in regular intervals including in the civil proceedings for substantially the same conduct. These are: period covering the contravention; • the court cannot make a civil penalty order in relation to a contra- • whether the compliance programme required attendance by key vention of the cartel provisions if the person has been convicted of a staff involved in the contravention (ie, those with exposure to criminal offence constituted by substantially the same conduct; and competition law risk); • civil proceedings are stayed if subsequent criminal proceedings • evidence of lack of commitment by senior executives; and are commenced in relation to substantially the same conduct. • whether the company voluntarily addressed any deficiencies in the compliance programme when the contravention came to its However, even if a court has imposed a civil penalty against a person, attention. criminal proceedings may still be commenced in relation to substan- tially the same conduct (although this is unlikely in practice). The factors applicable to the imposition of a criminal penalty for a contra- vention of the cartel prohibition do not explicitly include a reference to

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PRIVATE RIGHTS OF ACTION Civil immunity The criteria for conditional civil immunity are: Private damage claims • the applicant admits it is engaging in, or has engaged in, 26 Are private damage claims available for direct and indirect cartel conduct; purchasers? Do purchasers that acquired the affected • the applicant is the first party to apply for immunity in respect of product from non-cartel members also have the ability to the cartel; bring claims based on alleged parallel increases in the • the applicant has not coerced others to participate in the cartel; prices they paid (‘umbrella purchaser claims’)? What level of • the applicant has either ceased its involvement in the cartel or damages and cost awards can be recovered? undertakes to the ACCC that it will cease its involvement in the cartel; • the applicant’s admissions are a truly corporate act (corpora- Private parties who have suffered loss or damage as a result of cartel tions only); conduct may bring an action (including a class action) for damages • the applicant has provided full, frank and truthful disclosure, and against the cartel participants. In addition, private parties may seek a has cooperated fully and expeditiously while making the applica- range of other orders, such as injunctions. tion, including taking all reasonable steps to procure the assistance The ACCC can also take a form of representative proceeding on and cooperation of witnesses and to provide sufficient evidence behalf of private parties who have suffered loss or damage as a result to substantiate its admissions, and agrees to continue to do so of cartel conduct. on a proactive basis throughout the ACCC’s investigation and any Most class actions in Australia have been settled so there is limited ensuing court proceedings; case law dealing with damages awards in this context. • the applicant has entered into a cooperation agreement, and • the applicant has maintained and agrees to continue to maintain, Class actions confidentiality regarding its status as an immunity applicant, details 27 Are class actions possible? If so, what is the process for such of the investigation and any ensuing civil or criminal proceed- cases? If not, what is the scope for representative or group ings unless otherwise required by law or with the written consent actions and what is the process for such cases? of the ACCC.

Class actions are an established and important part of the Australian Generally, the ACCC will not grant conditional immunity if, at the time an legal landscape. There are a number of third-party litigation funders application is received, the ACCC is already in possession of evidence and a growing number of plaintiff class action legal practices. that is likely to establish at least one contravention of the CCA (whether In Australia, a class action can be commenced if: civil or criminal), arising from the cartel conduct. • there are seven or more persons with claims against the Conditional civil immunity will become final immunity after the same person; resolution of any ensuing proceedings against the remaining cartel • the claim is in respect of or arises out of the same, similar or participants. related circumstances; and • the claim gives rise to one substantial common issue of law or fact. Criminal immunity Where the ACCC considers that the applicant satisfies the conditions for Consent of the members of the class is not required to initiate a class civil immunity, it will make a recommendation to the CDPP that immunity action. However, members can opt out and bring their own action. from criminal prosecution is also granted to the applicant. The CDPP will There have been a number of class actions brought following on exercise its own discretion when considering the recommendation. from alleged cartel conduct, including in relation to the markets for vita- Where the CDPP is satisfied that the applicant meets the criteria for mins, cardboard boxes and air cargo. Most class actions are settled. criminal immunity (which are the same as the conditions for civil immu- As noted above, the ACCC can also bring representative actions for nity), it will initially provide a letter of comfort to the applicant. This is damages on behalf of people who have suffered loss or damage as a generally provided at the same time as the ACCC grants conditional civil result of cartel conduct. immunity. Prior to instituting a criminal prosecution against any member of the cartel who does not have immunity, the CDPP will then determine COOPERATING PARTIES whether to grant to the applicant with a written undertaking that grants conditional immunity subject to the applicant providing ongoing coopera- Immunity tion through the criminal proceedings. Once these conditions are fulfilled 28 Is there an immunity programme? If so, what are the basic by the immunity applicant, the immunity becomes final. elements of the programme? What is the importance of being ‘first in’ to cooperate? Subsequent cooperating parties 29 Is there a formal programme providing partial leniency for The ACCC Immunity and Cooperation Policy sets out the policies of the parties that cooperate after an immunity application has been Australian Competition and Consumer Commission (ACCC) in relation made? If so, what are the basic elements of the programme? If to applications for both civil and criminal immunity from ACCC-initiated not, to what extent can subsequent cooperating parties expect civil proceedings and criminal prosecution. While the ACCC is only to receive favourable treatment? responsible for granting civil immunity (criminal immunity is a matter for the Commonwealth Director of Public Prosecutions (CDPP)), the Parties who are not eligible for ‘first-in’ immunity can nonetheless coop- ACCC is the sole point of contact for applicants seeking civil or criminal erate with the ACCC in relation to its investigations. The ACCC’s policy immunity. Annexure B to the Prosecution Policy of the Commonwealth on cooperation is also set out in the ACCC Immunity and Cooperation sets out the CDPP’s policy when considering an application for immunity Policy. While cooperation does not provide immunity from prosecution, from criminal prosecution for serious cartel offences. it will typically result in more lenient treatment by the court (such as lower penalties). Unlike some jurisdictions, there are no pre-established discount levels. www.lexology.com/gtdt 21 © Law Business Research 2020 Australia Allens

Where the ACCC brings civil proceedings against parties to the Cooperation cartel, the ACCC may require the cooperating party to make admissions, 32 What is the nature, level and timing of cooperation that is agree to a statement of facts or give evidence against the remaining required or expected from an immunity applicant? Is there any cartel participants. Although the ACCC and the cooperating party difference in the requirements or expectations for subsequent may propose an agreed penalty to the court, and the ACCC will make cooperating parties that are seeking partial leniency? submissions to the court regarding the party’s cooperation, the court must ultimately determine whether the penalty is appropriate in all the To be eligible for criminal or civil immunity, the applicant must coop- circumstances. erate and provide full, frank and truthful disclosure in making the If a party cooperates with the ACCC during a criminal investiga- application and in any subsequent investigation or court proceedings. tion and the CDPP brings criminal proceedings, the CDPP may require An immunity application should be made as soon as possible but can the cooperating party to make admissions, agree a statement of facts be made after the ACCC has commenced an investigation. An applica- or give evidence against the remaining cartel participants. The CDPP tion for criminal immunity is made to the ACCC at the same time as the will then make submissions to the sentencing court about the party’s application for civil immunity and the ACCC is responsible for both the cooperation. In sentencing the defendant, the court is required to take civil and criminal investigations. into account cooperation, any early guilty plea and the extent to which If a party does not apply for immunity (or does not meet the the defendant has demonstrated contrition for the offence. Ultimately, it criteria), the party may instead cooperate with the ACCC. It is a condition will be for the court to determine the appropriate penalty or sentence, of the ACCC’s policy that cooperation be offered in a timely manner and although the ACCC, the CDPP and the cooperating party can provide the that the party offers full, frank and truthful disclosure and cooperates court with a penalty range. on a continuing basis through the investigation and any proceedings. In criminal proceedings, cooperation and the timeliness of a guilty plea are Going in second taken into account by the court in sentencing the defendant. 30 How is the second cooperating party treated? Is there an ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, Confidentiality how does it operate? 33 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection Civil and criminal immunity is only available to the first eligible party applicable to subsequent cooperating parties? What to disclose the conduct to the ACCC. However, if a party is not the first information will become public during the proceedings and party to approach the ACCC, or does not meet the immunity criteria when? outlined above, that party may instead cooperate with the ACCC. In addition, a party who is cooperating with the ACCC in relation The ACCC will use its best endeavours to protect confidential infor- to one cartel may apply for immunity in relation to a second unrelated mation provided to it as part of an immunity application, including the cartel and seek ‘amnesty plus’ for the original cartel conduct. Amnesty immunity applicant’s details. The ACCC generally has a policy that it plus is a recommendation by the ACCC to the court for a further will accept confidential information from cooperating parties as well. reduction in the civil penalty in relation to the first cartel. In criminal However, once the ACCC commences proceedings, it will generally proceedings, the CDPP will advise the court of the full extent of the disclose to the other cartel participants all information and evidence party’s cooperation in relation to both cartels so that the cooperation is that it is relying on to prove its case, which will include information taken into account for sentencing purposes. and documents provided by the immunity applicant. Depending on the A party is eligible for amnesty plus if it: nature of this information, it is sometimes provided to external counsel • is cooperating with the ACCC in respect of the first cartel investi- subject to undertakings. Once proceedings are commenced, a party may gation; and also apply to the court seeking a confidentiality order. The court has a • it receives conditional immunity for the second cartel. broad discretion to grant confidentiality orders and these are gener- ally granted in relation to documents that are commercially sensitive or Approaching the authorities prejudicial to the interests of the party. 31 Are there deadlines for initiating or completing an application In addition, section 155AAA of the CCA grants the ACCC a broad for immunity or partial leniency? Are markers available and discretion to disclose protected information in other circumstances, what are the time limits and conditions applicable to them? including: • by the ACCC in the performance of its duties or functions; The first step in an immunity application is to request a ‘marker’ from • where the ACCC is required or permitted by law to make the the ACCC. The marker preserves, for a limited period, the applicant’s disclosure (this includes where ordered by a court to disclose the status as the first party to seek immunity. The ACCC then allows the information under subpoena, except in relation to ‘protected cartel applicant a limited time in which to investigate the conduct and seek information’); conditional immunity if necessary. The time limit of the marker will be • to the minister, royal commission or designated government specified by the ACCC at the time the marker is granted, and will vary agencies; and depending on the circumstances. • where disclosure is made to a foreign government agency to The applicant will then prepare a ‘proffer’, which provides specific perform its functions. detail as to the type of evidence that can be provided to the ACCC to establish the existence of the cartel. If the ACCC is satisfied on the basis In practice, the ACCC has been reluctant to release confidential informa- of the proffer that the applicant has met the eligibility criteria for condi- tion as it has been concerned that this could interfere with its immunity tional immunity, the application will be granted. Conditional immunity process. It will generally not disclose to an overseas regulator protected will become final immunity at the conclusion of any ensuing proceed- information received from an immunity applicant without the applicant’s ings provided the applicant does not breach any conditions of immunity consent but this does not prevent the ACCC from having discussions and maintains eligibility under the immunity policy. about conduct that does not involve the disclosure of the confidential information.

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Additional measures are in place where the protected information Commission provided feedback on this proposal as part of its report into relates to cartel conduct and is provided in confidence (protected cartel Australia’s corporate criminal responsibility regime and recommended information). First, if the ACCC is a party to proceedings, the ACCC is not some revisions. required to produce protected cartel information to a court or tribunal except with the leave of a court or tribunal. Second, if the ACCC is not Corporate defendant and employees a party to the proceedings (eg, a follow-on damages claim), the ACCC 35 When immunity or partial leniency is granted to a corporate has the discretion to disclose protected cartel information. In exercising defendant, how will its current and former employees be their discretion to disclose or order disclosure of protected cartel infor- treated? mation, the court, tribunal or ACCC will have regard to: • the fact that the information was given to the ACCC in confidence When a corporation seeks immunity, it may apply for derivative immu- and by an informant; nity for related companies or current and former directors, officers and • Australia’s relations with other countries; employees of the corporation who were involved in the conduct. • the need to avoid disruption to national and enforcement efforts; and Dealing with the enforcement agency • whether disclosure would be in the interests of justice or securing 36 What are the practical steps for an immunity applicant effective performance of the tribunal’s or court’s functions. or subsequent cooperating party in dealing with the enforcement agency? Despite this, it is important to be aware that documents and information provided to the ACCC have the potential to be disclosed to third parties. In order to satisfy the criteria for both conditional civil and criminal immunity, the immunity applicant would need to: Settlements • admit it is engaging in, or has engaged in, cartel conduct; 34 Does the investigating or prosecuting authority have the • be the first party to apply for immunity in respect of the cartel; ability to enter into a plea bargain, settlement, deferred • demonstrate that it has not coerced others to participate in prosecution agreement (or non-prosecution agreement) or the cartel; other binding resolution with a party to resolve liability and • demonstrate that it has either ceased its involvement in the cartel penalty for alleged cartel activity? What, if any, judicial or or undertake to the ACCC that it will cease its involvement in other oversight applies to such settlements? the cartel; • demonstrate that its admissions are a truly corporate act (corpora- Civil offences tions only); The ACCC does not have the power to impose a penalty itself. If the • provide full, frank and truthful disclosure, and cooperate fully respondent admits to cartel conduct, the ACCC must still bring proceed- and expeditiously while making the application, including taking ings in order for a penalty to be imposed. Reaching a settlement with all reasonable steps to procure the assistance and cooperation the ACCC in these circumstances generally involves the ACCC and of witnesses and provide sufficient evidence to substantiate its the respondent agreeing on a statement of facts and the scope of the admissions, and agree to continue to do so on a proactive basis respondent’s admissions. The ACCC and the respondent may also poten- throughout the ACCC’s investigation and any ensuing court tially agree on a penalty and make joint submissions to the court as to proceedings; why that penalty is appropriate. The court will make declarations that • enter into a cooperation agreement; and cartel conduct occurred if it is satisfied that the agreed facts and admis- • maintain, and agree to continue to maintain, confidentiality sions amount to cartel conduct under the CCA. The court will order the regarding its status as an immunity applicant, details of the inves- penalty proposed by the parties if satisfied that it is appropriate in all tigation and any ensuing civil or criminal proceedings unless the circumstances. otherwise required by law or with the written consent of the ACCC.

Criminal offences Parties who are not eligible for ‘first-in’ immunity can nonetheless In criminal cases, the defendant can admit to cartel conduct and, cooperate with the ACCC in relation to its investigations. Where the together with the CDPP, file an agreed statement of facts and admis- ACCC brings civil proceedings or the CDPP brings criminal proceed- sions with the court. However, unlike in civil cases, it is not appropriate ings against the participants to a cartel, the cooperating party may be that the defendant, ACCC and CDPP propose a fine to the court. The required by the ACCC or the CDPP to make admissions, agree to a state- defendant is permitted to make submissions to the court as to the ment of facts or give evidence against the remaining cartel participants. appropriate penalty range and the prosecution can respond to the range proposed and indicate whether in the prosecution’s submission it would DEFENDING A CASE be open to the court to impose a sentence within that range, or whether imposing a sentence within that range might lead to appellable error. Disclosure However, the appropriate penalty is a matter for the court in its discre- 37 What information or evidence is disclosed to a defendant by tion. The court will take into account a range of factors in sentencing, the enforcement authorities? including: • the degree to which the person has shown contrition; A party against whom civil legal proceedings have been commenced • whether the person has entered an early guilty plea; and may apply to the Australian Competition and Consumer Commission • the degree to which the person has cooperated. (ACCC) to be given copies of all documents in the ACCC’s possession that tend to establish the case of the respondent in the proceeding, and that While there is currently a bill before the Federal Parliament to estab- were not created by the ACCC itself or obtained from the respondent. lish a deferred prosecution agreement regime in Australia in relation to This right enables the respondent to a cartel proceeding to obtain a brief a specific set of serious corporate criminal offences, it is not intended of evidence in the ACCC’s possession containing documents held by the to apply to cartel offences. In August 2020, the Australian Law Reform ACCC in relation to the respondent’s case. www.lexology.com/gtdt 23 © Law Business Research 2020 Australia Allens

In criminal proceedings, the prosecution owes a duty of disclosure Taxes to the court, not to the accused. However, principles require 41 Are fines or other penalties tax-deductible? Are private that defendants are entitled to know the case against them, including damages payments tax-deductible? the evidence that will be adduced in support of the charges and any other material that may be relevant to the defence. These principles It is not possible to deduct an amount payable by way of penalty imposed are supplemented by a range of state and territory legislation, which under an Australian or foreign law. requires the prosecution to disclose certain material to defendants. Regarding private damages awards, in general, a loss or outgoing The ‘Statement on Disclosure in Prosecutions by the Commonwealth’, is deductible to the extent that it is incurred in gaining or producing sets out the materials that the Commonwealth Director of Public assessable income or is necessarily incurred in carrying on a business Prosecutions (CDPP) will disclose to the defendant, in addition to those for the purpose of gaining or producing assessable income, and is not required to be disclosed under state or territory legislation. a loss or outgoing of capital, or of a capital nature. If the payment of In addition, the respondent enjoys the usual rights including legal an award of private damages is not tax-deductible under general prin- professional privilege and, in criminal matters, the privilege against ciples, the company would need to consider whether such a payment self-incrimination for individuals. would be recognised for tax purposes in some other way (eg, whether it could give rise to a capital loss, or whether the company could deduct Representing employees the amount over five years pursuant to the ‘black hole’ capital expendi- 38 May counsel represent employees under investigation in ture provisions in the Australian tax law). addition to the corporation that employs them? When should a present or past employee be advised to obtain independent International double jeopardy legal advice or representation? 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In There is no absolute prohibition on counsel acting for both the employees private damage claims, is overlapping liability for damages in and the corporation that employs them, unless there is a conflict of other jurisdictions taken into account? interest or the interests are adverse. In practice, many employees are separately represented, at least to an extent. Often, early in proceed- Other than the relevant maximum penalty, courts are not constrained ings it is unclear what the involvement of an employee has been with when imposing penalties or awarding damages. There is no general the conduct under investigation. If proceedings are threatened, it will principle that precludes the imposition of penalties on a corporation or generally be advisable for employees to obtain separate legal counsel. individual where the corporation or individual has already been subject Part of the ACCC’s assessment under its cooperation policy is whether to sanctions overseas. However, if penalties are to be imposed on the individuals are separately represented. basis of the corporation’s annual turnover for the preceding 12 months, the court will disregard turnover in relation to goods or services Multiple corporate defendants supplied outside of Australia. 39 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated? Getting the fine down 43 What is the optimal way in which to get the fine down? There is no absolute prohibition on counsel representing multiple corporate defendants and this may occur if the companies are related. Case law suggests that the key factors that could reduce the fine after However, in many cases, companies will need separate representation the commencement of a cartel investigation include: because there will be potential conflict issues. • an early guilty plea by the contravener; • cooperating and assisting the authorities with their investigation; and Payment of penalties and legal costs • implementing a compliance programme with appropriate antitrust 40 May a corporation pay the legal penalties imposed on its compliance structures, guidelines and systems so as to prevent the employees and their legal costs? repetition of any similar anticompetitive conduct.

Civil penalties UPDATE AND TRENDS A company must not indemnify a person against a civil liability or legal costs incurred in defending or resisting proceedings in which the person Recent cases is found to have such a liability. 44 What were the key cases, judgments and other developments of the past year? Criminal penalties Under Australian corporations law, a company or related body corpo- The appeal by the Australian Competition and Consumer Commission rate must not indemnify a person against any liability incurred as an (ACCC) on its first alleged ‘hub and spoke’ cartel case against PZ officer of the company that is owed to someone other than the company Cussons was dismissed by the Full Court of the Federal Court on 24 or related body corporate and did not arise out of conduct in good faith. May 2019. The proceedings were in relation to an alleged agreement This prohibits indemnification of company officers for involvement in between laundry detergent suppliers to stop supplying standard criminal cartel conduct. concentrate detergent in favour of ultra-concentrate detergent. At first A company or related body corporate is also prohibited from indem- instance, the trial judge found that there was insufficient evidence to nifying a person against legal costs incurred in defending or resisting an establish an arrangement or understanding between the suppliers. The action for liability incurred as an officer in criminal proceedings in which Full Court dismissed all 10 grounds of the ACCC’s appeal. a person is found guilty. If the person is found not guilty, the company or On 30 May 2019, the Federal Court ordered PT Garuda Indonesia related body corporate may indemnify the person for legal costs. Ltd (Garuda) to pay a penalty of A$19 million for its collusive arrange- While not prohibited under statute, an indemnification against fines ment on fees and surcharges for air freight services ending the ACCC’s resulting from a criminal conviction is unenforceable at common law. long running case against Garuda which commenced in 2009. However,

24 Cartel Regulation 2021 © Law Business Research 2020 Allens Australia

Garuda has since appealed the A$19 million penalty, which is yet to be heard. On 2 August 2019, the Federal Court ordered Kawasaki Kisen Kaisha Ltd (K–Line) to pay a fine of A$35.5 million for criminal cartel conduct, the largest ever criminal fine being imposed under the Competition and Consumer Act 2010 (Cth) (CCA). The court also found that, but for K– Line’s early guilty plea and past cooperation, the fine would have been A$48 million. The significant sentencing discount demonstrates that an early guilty plea and cooperation are important factors that could Fiona Crosbie [email protected] reduce the fine when pleading guilty to cartel charges. Criminal cartel charges against another member of the cartel, Rosannah Healy Wallenius Wilhelmsen Ocean AS (WWO), were laid in August 2019, and [email protected] WWO entered a guilty plea in the Federal Court on 18 June 2020. WWO Ted Hill is yet to be sentenced. [email protected] On 30 August 2019, the ACCC commenced civil cartel proceedings against BlueScope Steel Limited and one of its former general managers Level 28, Deutsche Bank Place in relation to alleged attempts to induce various steel distributors in 126 Phillip Street Australia and overseas manufacturers to enter into price-fixing agree- (Corner Hunter & Phillip Streets) ments. On 1 September 2020, the former general manager pled guilty Sydney NSW 2000 in relation to one charge of criminal obstruction related to his actions Australia during the ACCC investigation. Tel: +61 2 9230 4000 On 4 September 2019, the Full Court of the Federal Court dismissed www.allens.com.au the ACCC’s appeal in relation to alleged bid rigging between Cascade Coal Pty Ltd and Paul and Moses Obeid in the market for coal explora- tion licences. The Full Court upheld the Federal Court’s first instance decision dismissing the ACCC’s case in July 2018, agreeing that Cascade • to facilitate the national health response, including the manu- and other respondents were not competitors. The Full Court also agreed facturing of medical devices and integrating public and private that, in any event, the joint venture exception would have applied. hospitals; and • to enable competitors to co-ordinate on certain terms of pandemic Regime reviews and modifications related customer relief packages, including in relation to home 45 Are there any ongoing or anticipated reviews or proposed loans, telecommunications and energy. changes to the legal framework, the immunity/leniency programmes or other elements of the regime? Like other authorisations, covid-19 related authorisations are only granted where the proposed conduct will result in a net public benefit. The ACCC has updated its Immunity and Cooperation Policy for cartel The ACCC has typically imposed conditions on these authorisations, conduct that came into effect on 1 October 2019. including requirements to provide regular reports to the ACCC. Under the revised policy, the applicant will be required to enter into As authorisations cannot be granted retrospectively, businesses a cooperation agreement which sets out steps that the applicant agrees who wish to coordinate with competitors in response to the effects of to undertake to satisfy the obligations under the policy. In addition, the the pandemic should obtain legal advice as to whether ACCC authorisa- policy will no longer apply to parties engaged in concerted practices. tion is required. As a result, if the ACCC forms the view that the conduct reported by an applicant is not cartel conduct but would otherwise be an anticom- petitive concerted practice, conditional immunity would not be granted under the policy and the applicant would need to seek to cooperate under the ACCC Cooperation Policy for Enforcement Matters instead. In these circumstances, the ACCC may nonetheless use the information provided by the applicant in limited circumstances, including using the information provided indirectly to further its investigation and gather evidence that could be used against the applicant.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

Since March 2020, the ACCC has granted a range of authorisations to allow competitors to coordinate during the covid-19 pandemic. These authorisations have sought to address a range of social, health and economic impacts, including: • to ensure the ongoing supply of essential goods and services such as groceries and pharmaceuticals; www.lexology.com/gtdt 25 © Law Business Research 2020 Austria

Andreas Traugott and Anita Lukaschek Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG

LEGISLATION AND INSTITUTIONS Joint ventures and strategic alliances 5 To what extent are joint ventures and strategic alliances Relevant legislation potentially subject to the cartel laws? 1 What is the relevant legislation? The cooperation between undertakings in the framework of joint The Cartel Act 2005 and the Competition Act 2002. ventures and strategic alliances are generally subject to the Austrian and EU cartel laws. Relevant institutions The creation of joint ventures may be subject to Austrian merger 2 Which authority investigates cartel matters? Is there control scrutiny, if a full-function joint venture is created, or parts of a separate prosecution authority? Are cartel matters an undertaking, relevant business activities or assets are brought into adjudicated or determined by the enforcement agency, a the joint venture, and the relevant merger control thresholds are met. separate tribunal or the courts? However, general antitrust rules (including the prohibition of cartels) may apply to elements of joint ventures that are not covered by merger The Federal Competition Authority (BWB) and the Federal Cartel control approval requirements. (FCP) are the prosecutory competition authorities. They do not have decision-making powers. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Decisions (eg, on whether a sanction for cartel conduct should be imposed) must be made by the Cartel Court, on request of the BWB, or Application of the law the FCP, or the Cartel Supreme Court, which hears appeals of the Cartel 6 Does the law apply to individuals, corporations and other Court’s decisions. entities? Moreover, criminal prosecution authorities – namely, the police, the Federal Bureau of Anti-corruption, and the public prosecutor – may also The Cartel Act applies to legal entities and to individuals acting as sole prosecute cartels if they carry out criminal offences (eg, bid rigging). entrepreneurs. Individuals may also be held accountable to the extent that the conduct in question constitutes a criminal offence (eg, bid rigging). Changes 3 Have there been any recent changes, or proposals for change, Extraterritoriality to the regime? 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If There have been no significant recent changes to cartel legislation, in so, on what jurisdictional basis? terms of substantive provisions. In 2018, BWB introduced a Whistleblower System, that allows Austrian competition legislation applies if the conduct affects the domestic informants to provide the BWB with information on suspected cartel market, irrespective of whether the conduct took place in Austria. activities via a secured anonymous mailbox. The mailbox is designed so that the supplier of the information cannot be traced by Austrian Federal Export cartels Competition Authority or other third parties. 8 Is there an exemption or defence for conduct that only affects A number of changes are expected in connection with the imple- customers or other parties outside the jurisdiction? mentation of the EU Directive 2019/1 (ECN+ Directive), which is to be implemented by February 2021. Austrian competition legislation generally only applies if the conduct affects the domestic market. Substantive law 4 What is the substantive law on cartels in the jurisdiction? Industry-specific provisions 9 Are there any industry-specific infringements? Are there any Section 1, paragraph 1 of the Austrian Cartel Act is equivalent to article industry-specific defences or exemptions? 101, paragraph 1 of the Treaty on the Functioning of the European Union (TFEU). There are no industry-specific infringements. It prohibits agreements between undertakings, concerted practices Industry-specific exemptions exist for certain types of agreements and decisions of associations of undertakings which aim to or effectively between agricultural producers and for certain re-sale price restrictions prevent, restrict or distort competition. in the distribution of books and comparable products. There are no sector-specific cartel offences.

26 Cartel Regulation 2021 © Law Business Research 2020 Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG Austria

Government-approved conduct and the Austrian Supreme Cartel Court has referred the matter to the 10 Is there a defence or exemption for state actions, European Court of Justice for a preliminary ruling (case C–151/20 – government-approved activity or regulated conduct? Nordzucker and others).

Generally, there is no specific exemption under Austrian cartel law for CARTEL PROCEEDINGS government-approved or regulated conduct. Decisions INVESTIGATIONS 15 How is a cartel proceeding adjudicated or determined?

Steps in an investigation The Federal Competition Authority (BWB) may resolve a cartel inves- 11 What are the typical steps in an investigation? tigation by closing the investigation or filing a request with the Cartel Court (the decision-making institution) to impose fines or to issue an An investigation by the Federal Competition Authority (BWB) is often order to terminate the alleged infringement. triggered by a complaint or a tip off (eg, information received via the Settlements are available. In case of a settlement, a formal deci- BWB’s Whistleblower System or a leniency application). sion is issued by the Cartel Court on the basis of the terms (in particular, The BWB does not issue a formal decision when it opens or closes the amount of the fine) negotiated beforehand between the company an investigation. It initiates the investigation by taking investigation and the BWB. measures (eg, inspections or requests of information). A request for the imposition of fines or an order to terminate the The timeframe for investigations varies significantly, ranging from alleged infringement may also be filed by the Federal Cartel Prosecutor several months to several years. This depends on the specific circum- (FCP) (the second prosecution agency for competition law in Austria). stances of the case (eg, complexity and evidence), as well as other The BWB, the FCP and the defendant are parties to a Cartel Court factors such as the enforcement priorities and resources of the BWB. proceeding. After hearing the parties’ arguments and taking evidence (eg, Investigative powers of the authorities witnesses and expert opinions), the Cartel Court issues its decision. It 12 What investigative powers do the authorities have? Is court may reject the BWB’s request as unfounded or follow the request and: approval required to invoke these powers? • impose fines (the Court may impose a lower fine than was requested by the BWB, but not a higher one); The BWB may, by request or by decision, ask undertakings and associa- • order the termination of the infringement; tions of undertakings to provide all necessary information. It may also • adopt a commitment decision, which makes commitments offered conduct inspections and take witness statements. by the defendant addressing the competition concerns identified by the BWB binding on the defendant but does not establish an INTERNATIONAL COOPERATION infringement; or • adopt a declaratory decision on the infringement (a formal finding Inter-agency cooperation on the infringement, that does not impose a fine or decide on 13 Is there cooperation with authorities in other jurisdictions? remedies). If so, what is the legal basis for, and extent of, such cooperation? Burden of proof 16 Which party has the burden of proof? What is the level of The BWB closely cooperates with the competition authorities of other EU proof required? member states within the legal framework of the European Competition Network (ECN). The BWB also cooperates on a bilateral basis with the The BWB or FCP must prove that an infringement has taken place. competition authorities of non-EU member states. In this respect, it has to be established with a sufficient degree of certainty that an infringement took place. Interplay between jurisdictions 14 Which jurisdictions have significant interplay with your Circumstantial evidence jurisdiction in cross-border cases? If so, how does this affect 17 Can an infringement be established by using circumstantial the investigation, prosecution and penalising of cartel activity evidence without direct evidence of the actual agreement? in cross-border cases in your jurisdiction? Under Austrian civil , which is also relevant in cartel There is a significant interplay with a number of different jurisdictions, proceedings, there are no explicit statutory limitations as to the types in particular with other European Union member states, and especially of evidence. However, the relevant criterion is that the infringement has with Germany, for which cross-border coordination plays an important to be established with a sufficient degree of certainty. All evidence has role. Such interplay impacts investigations, in particular their time- to be taken into account by the court when weighing the evidence, care- frames, as the agencies endeavour to coordinate their actions in order fully taking into consideration the circumstances of the case. to not put at risk the effectiveness of the respective investigations. There is also an intense cooperation with the EU Commission (within Appeal process the framework and based on article 22 Regulation 1/2003) with respect 18 What is the appeal process? to the assistance in carrying out inspections. Regarding the enforcement of cartel law in cross-border cases, the Decisions issued by the Cartel Court may be appealed to the Supreme Cartel Court recently decided in a sugar cartel case, that – because of Cartel Court by the decision’s addressee (the infringing party) and the the ne bis in idem principle – the Court lacked jurisdiction to decide enforcement agencies (BWB and FCP) within four weeks of being issued. on or fine a cartel member that had already been subject to a decision The appeal can be based on questions of law. Appeals based on of Germany’s Federal Cartel Office. The BWB appealed this decision, facts are rarely allowed; only in cases where there are serious doubts www.lexology.com/gtdt 27 © Law Business Research 2020 Austria Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG

as to the correctness of the facts underlying the decision of the Cartel Compliance programmes Court. This criterion is interpreted very narrowly by the Supreme 22 Are sanctions reduced if the organisation had a compliance Cartel Court. programme in place at the time of the infringement? The opposing party or parties to an appeal have four weeks to respond. There is no oral hearing – the Supreme Cartel Court forms a There is no formal recognition of compliance credit in Austria. decision based on the case file. The timeframe for the decision varies However, the Austrian Cartel Act’s list of mitigating circumstances is significantly, depending on the complexity of the question at issue and non-exhaustive and authorities could accept compliance programmes the general workload of the relevant Supreme Court senate, and may as a mitigating factor based on current rules. As regards to case range from several months to more than a year. The decision-making law, in one published decision the Cartel Court identified an under­ process may even take longer, if the Supreme Cartel Court decides to taking’s ‘zero tolerance policy’ as present in ‘in a bundle’ of mitigating refer the legal question to the European Court of Justice for a prelimi- circumstances. Compliance programmes can play a role in settlement nary ruling. negotiations with the Federal Competition Authority (BWB), when it comes to determining the settlement sum. Even though there is a SANCTIONS lack of formal recognition or settled case law on compliance credit in Austria, there are indications – such as public statements by the BWB’s Criminal sanctions director general – that the BWB is considering adopting a new, formal, 19 What, if any, criminal sanctions are there for cartel activity? approach in the future.

Potential penalties for individuals under Austrian include Director disqualification imprisonment and fines. The maximum term of imprisonment that may 23 Are individuals involved in cartel activity subject to orders be imposed for the specific criminal offence of bid rigging is three years. prohibiting them from serving as corporate directors or If the cartel offence also qualifies as a severe fraud, imprisonment of up officers? to 10 years could be imposed. Both individuals (eg, employees involved in cartel activities) and companies can be subject to criminal prosecu- There is no legal basis in the relevant Cartel legislation providing for tion, the latter based on the Austrian law on Criminal Corporate Liability the imposition of orders prohibiting individuals involved in cartel activity (Verbandsverantwortlichkeitsgesetz). from serving as corporate directors or officers. In recent years, the criminal prosecution agencies have become However, the Austrian law that details conditions an individual increasingly active in prosecuting cartel offences (eg, in the context of must meet to be issued a business licence to operate in certain business the pending investigations of cartel activities in the construction sector). areas provides that an individual who receives a criminal conviction leading to a term of imprisonment exceeding three years may not Civil and administrative sanctions receive such licences. 20 What civil or administrative sanctions are there for cartel Similar rules exist under the public procurement laws, according activity? to which a company’s prior conviction or the prior conviction of person having a managing or controlling function within the company (eg, the Penalties under competition law include fines of up to 10 per cent of managing director or a member of the board) could lead to the company the total annual group turnover of the company (including affiliated being excluded from public tenders. companies). Penalties are regularly levied, if the cartel enforcement authorities Debarment investigate cartel activities and bring the case to the Cartel Court. The 24 Is debarment from government procurement procedures level of fine largely depends on the concrete circumstances of the case, automatic, available as a discretionary sanction, or not in particular if the infringing company cooperates with the authority or available in response to cartel infringements? – as is frequently the case – agrees on a settlement. According to section 78(1) Austrian Federal Procurement Act, undertak- Guidelines for sanction levels ings are to be excluded from public procurement proceedings in the 21 Do fining or sentencing principles or guidelines exist? If yes, event of a final conviction for specific criminal offences, which could are they binding on the adjudicator? If no, how are penalty raise doubts on the company’s reliability. This decision is to be taken by levels normally established? What are the main aggravating the respective contracting (public) institution. and mitigating factors that are considered? Parallel proceedings There are no guidelines in place for penalties. However, the Cartel Act 25 Where possible sanctions for cartel activity include criminal establishes some basic criteria, which are relevant for the calculation of and civil or administrative penalties, can they be pursued the fine, including: in respect of the same conduct? If not, when and how is the • the duration and seriousness of the infringement; choice of which sanction to pursue made? • the economic situation of the company; • the level of cooperation of the company during the proceedings; and Competition and criminal law enforcement agencies regularly pursue • aggravating (eg, repeated offences) and mitigating factors (eg, the the same conduct (and cooperate in their investigations), although with undertaking took a subordinate role in the infringement). a different focus. Whereas criminal law enforcers focus on the pros- ecution and sanctioning of the individuals involved, competition law In practice, the calculation of fines also makes reference to the European agencies may only pursue and sanction undertakings for their involve- Commission’s fining guidelines (to the extent that these build on the ment in cartel activities. It is being debated, but has not yet been subject same criteria as those established by Austrian competition law). to a Supreme Court decision, whether an undertaking’s involvement in cartel activities that qualifies as infringements of cartel and criminal law, may – in light of the ne bis in idem principle – be pursued and

28 Cartel Regulation 2021 © Law Business Research 2020 Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG Austria sanctioned by both cartel law enforcers (based the Cartel Act 2005 and for leniency applicants in private litigation, the relevant provisions of the Competition Act 2002) and criminal law enforcers (based on criminal EU Directive 2014/104 (the Damages Directive) have been transposed law, in the framework of corporate criminal liability). into national law (the Cartel Act 2005). Accordingly, the specific leniency documents (in particular the leniency statement) are protected from PRIVATE RIGHTS OF ACTION production or disclosure in private litigation. Also, there are benefits in terms of limitations to the joint and several liability. Private damage claims 26 Are private damage claims available for direct and indirect Subsequent cooperating parties purchasers? Do purchasers that acquired the affected 29 Is there a formal programme providing partial leniency for product from non-cartel members also have the ability to parties that cooperate after an immunity application has been bring claims based on alleged parallel increases in the made? If so, what are the basic elements of the programme? prices they paid (‘umbrella purchaser claims’)? What level of If not, to what extent can subsequent cooperating parties damages and cost awards can be recovered? expect to receive favourable treatment?

Yes, any party that has suffered harm may assert damage actions, Subsequent cooperating parties (ie, the second, third and further appli- including generally direct and indirect purchasers. The relevant provi- cants) will generally not qualify for full immunity, but may still qualify sions of EU Directive 2014/104/EU (the Damages Directive) have been for a reduction of fines, if they provide evidence constituting a ‘signifi- transposed into national law (the Cartel Act 2005). cant added value’ and all other general conditions under the Austrian The Austrian Supreme Court has already twice referred questions leniency programme are met. According to the Federal Competition regarding legal standing (and, more generally, on the scope of liability Authority’s Leniency Manual, the following reductions can be granted: and the requirements of causal link and adequacy), to the European • 30 to 50 per cent for the second undertaking; Court of Justice (ECJ). • 20 to 30 per cent for the third undertaking; and In 2014, the ECJ dealt with the question whether customers of • up to 20 per cent for every subsequent undertaking. the infringing companies had the right to claim so-called ‘umbrella damages’ (case C–557/12 – Kone and Others). In a more recent decision, There are no specific provisions or general policies on ‘immunity plus’ issued in December 2019, the ECJ specifically dealt with the question or ‘partial immunity’, a similar concept has already been applied in prac- whether persons or entities not acting as a supplier or a purchaser in tice (granting immunity for a specific element of the infringement that the market affected by the infringements, but claiming an indirect harm has not been reported by the first, but only the second applicant). (in the specific case (case C–435/18 – Land Oberösterreich/Otis et al): through the granting of loans at favourable financial terms), are enti- Going in second tled to claim damages. The ECJ found that the claimant had the right 30 How is the second cooperating party treated? Is there an to request damages, but would still to prove that he or she actually ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, suffered such loss and that causal connection between that loss and the how does it operate? infringement existed. Single damages are awarded. There are no punitive damages under According the Federal Competition Authority’s Leniency Manual, the Austrian law. However, a successful claimant is entitled to interest and second applicant may benefit from a wider reduction range (30 to 50 per the recovery of its procedural costs. cent) for the fines to be imposed, compared to subsequent applicants. Currently, there are a number of cases pending in the Austrian There are no specific provisions or general policies on ‘immu- courts with considerable claims for damages. nity plus’ or ‘partial immunity’, but a similar concept has already been applied in practice (ie, granting immunity to the second applicant for Class actions providing information regarding a specific element of the infringement 27 Are class actions possible? If so, what is the process for such that was not been reported by the first applicant). cases? If not, what is the scope for representative or group actions and what is the process for such cases? Approaching the authorities 31 Are there deadlines for initiating or completing an application No class actions in the strict sense may be brought in Austria. However, for immunity or partial leniency? Are markers available and potential claimants may be able to accumulate their claims (eg, by way what are the time limits and conditions applicable to them? of assignment of claims to a special purpose claims vehicles). The first applicant may also apply for a marker to secure its position for COOPERATING PARTIES a period determined by the BWB. An applicant must provide some essen- tial information on the scope and nature of the infringement before a Immunity deadline set by the BWB that will be within eight weeks of the application. 28 Is there an immunity programme? If so, what are the basic elements of the programme? What is the importance of being Cooperation ‘first in’ to cooperate? 32 What is the nature, level and timing of cooperation that is required or expected from an immunity applicant? Is An immunity and leniency programme operated by the Federal there any difference in the requirements or expectations Competition Authority (BWB) is available for companies under Austrian for subsequent cooperating parties that are seeking partial competition legislation. Only the company which is ‘first in’ to cooperate leniency? within the framework of the leniency programme may benefit from full immunity, provided that all other conditions are fulfilled. If the company All leniency applicants (irrespective of their position) are required to is not the first company to file such a request, it may qualify for a reduced fully and genuinely cooperate throughout the whole procedure in order fine under the leniency programme. As regards the potential benefits to benefit from the programme (ie, full immunity or a reduction in fines). www.lexology.com/gtdt 29 © Law Business Research 2020 Austria Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG

The cooperation obligation includes, among other things, an obligation DEFENDING A CASE to present all available evidence and information and to treat the leni- ency application in strict confidence. Disclosure 37 What information or evidence is disclosed to a defendant by Confidentiality the enforcement authorities? 33 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection During an investigation by the Federal Competition Authority (BWB), applicable to subsequent cooperating parties? What only limited information or evidence will be disclosed to the (future) information will become public during the proceedings and defendant. If the BWB conducts investigations, such as inspections, the when? company will receive information about the pending investigation in the reasoning given in the search warrant. The company will be provided As a matter of principle, the competition authorities will aim to protect with the warrant at the beginning of the inspection. the identity of the leniency applicant to the extent possible during the Before filing a request to the Cartel Court to open proceedings to investigation. Prior to the initiation of Cartel Court proceedings, the iden- issue a decision, the BWB has to inform the defendant about the findings tity of the leniency applicant (and other related information) will so be of its investigations. revealed only if it is indispensable for the purposes of the investigation. In the Cartel Court proceedings, the defendants have full access The leniency statement is expressly protected by the Cartel Act to all information and evidence in the Court file (ie, all information and from disclosure in the context of private damage claims. evidence that has been submitted by the BWB to the Cartel Court in the course of these proceedings). Settlements 34 Does the investigating or prosecuting authority have the Representing employees ability to enter into a plea bargain, settlement, deferred 38 May counsel represent employees under investigation in prosecution agreement (or non-prosecution agreement) or addition to the corporation that employs them? When should other binding resolution with a party to resolve liability and a present or past employee be advised to obtain independent penalty for alleged cartel activity? What, if any, judicial or legal advice or representation? other oversight applies to such settlements? This depends on whether there might be a conflict of interest between, Settlements are available. In cases of a settlement, a formal decision is which is likely to occur in this scenario. issued by the Cartel Court on the basis of the terms (in particular, the amount of the fine) negotiated between the company and the BWB. This Multiple corporate defendants decision can be appealed to the Supreme Court sitting as the Supreme 39 May counsel represent multiple corporate defendants? Does Cartel Court. it depend on whether they are affiliated?

Corporate defendant and employees Representation of multiple corporate defendants in a cartel case will 35 When immunity or partial leniency is granted to a corporate generally be excluded, as a conflict of interest may occur in such defendant, how will its current and former employees be a scenario. treated? Payment of penalties and legal costs Pursuant to section 209b of the Criminal Code, employees who are 40 May a corporation pay the legal penalties imposed on its subject to criminal liability may benefit from a specific criminal immunity employees and their legal costs? programme that links the immunity of individuals (eg, employees) from criminal charges to the cooperation of companies within the framework The cost of an employee’s legal representation can be covered by the of the competition law leniency programme. corporation employing them. However, under certain circumstances the payment of an employee’s fine may not be allowed. Dealing with the enforcement agency 36 What are the practical steps for an immunity applicant Taxes or subsequent cooperating party in dealing with the 41 Are fines or other penalties tax-deductible? Are private enforcement agency? damages payments tax-deductible?

The immunity applicant or subsequent cooperating parties must provide In the meantime, it has been clarified that fines imposed by the competi- all available information and evidence on the alleged infringement, and tion authorities are in principle not deductible (since it would contravene promptly inform the enforcement agency about any relevant circum- the effect of the sanction). A deduction is only possible to the extent the stances and other further information it becomes aware of in the course fine reflects an enrichment of the infringer. Since a fining decision does of the proceedings. It needs to take adequate measures to safeguard usually not contain a clearly defined portion, which allows for the quan- confidentiality and ensure that the infringement has been terminated. tification of an enrichment component (and the infringer has normally With regard to the latter, the applicant first has to liaise with the no interest to quantify such a component), there are not many cases in enforcement agency to ensure that the measures taken with regard to practice which may qualify for a tax deduction. the termination do not jeopardise the confidentiality, and therefore the Since damages are compensatory (and not punitive) in Austria, effectiveness, of the enforcement agency’s investigations. damages paid out to private claimants are in principle deductible.

30 Cartel Regulation 2021 © Law Business Research 2020 Baker & McKenzie, Diwok Hermann Petsche Rechtsanwälte LLP & Co KG Austria

International double jeopardy 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in other jurisdictions taken into account?

The question of double jeopardy is subject to a pending proceeding before the European Court of Justice (case C–151/20 – Nordzucker and others), essentially regarding the question whether the (allegedly) Andreas Traugott [email protected] same conduct can be pursued or sanctioned by two national competition agencies in parallel or whether this is prevented by the ne bis in idem Anita Lukaschek principle. [email protected] Generally, as based on a general principle of international law, the Austrian Cartel Court will only take into account effects on the Schottenring 25 domestic Austrian market and calculate fines based on the domestic 1010 Vienna revenues that have been generated in the business area affected by Austria cartel activities. Tel.: +43 1 24 250 266 As regards to private damage claims, subject to such a claim Fax: +43 1 24 250 600 being reasonable and supported by relevant evidence, a civil court www.bakermckenzie.com would take into account if damages have already be awarded, in full or partially, by another civil court, in Austria or another jurisdiction, to avoid overcompensation. Regime reviews and modifications Getting the fine down 45 Are there any ongoing or anticipated reviews or proposed 43 What is the optimal way in which to get the fine down? changes to the legal framework, the immunity/leniency programmes or other elements of the regime? There are different ways of avoiding or minimising fines. Ideally, the infringing company is the first in to cooperate within the framework of The EU Directive 2019/1 (the ECN+ Directive) must be implemented the leniency programme, or manages to secure a significant reduction in Austria by February 2021. Austrian cartel law already largely of fines as subsequent applicant in the context of this programme. corresponds to the required minimum harmonisation, so the need for In parallel or alternatively – if immunity is not available anymore amendments should be limited. – the infringing company may still endeavour to cooperate and reduce the fine by negotiating and agreeing to a settlement with the BWB that Coronavirus is then confirmed by a Cartel Court decision. 46 What emergency legislation, relief programmes, enforcement Finally, compliance programmes may be taken into account by policies and other initiatives related to competitor conduct the Cartel Court as a mitigating factor, when determining the concrete have been implemented by the government or enforcement level of fine. authorities to address the pandemic? What best practices are advisable for clients? UPDATE AND TRENDS There are no measures related to covid-19 or specific legislation that Recent cases limited the application of cartel law. 44 What were the key cases, judgments and other developments In March 2020, the BWB issued a statement on the impact of the of the past year? covid-19 crisis on competition law in Austria. It referred to the joint statement by the EU competition authorities, briefly addressed the issue The Federal Competition Authority (BWB) and the criminal law of necessary and temporary cooperation to avoid shortages of supply or enforcement agencies are still investigating a major cartel case in the products amid the crisis, and announced to prioritise complaints about construction sector that dates back to 2017. At the end of October 2020, health products of importance in the fight against the virus. the BWB issued an announcement on its website that it had filed an Against this background, if there are any specific competition law application with the Cartel Court to impose fines on four companies – a issues that need to be assessed against the background of the pandemic parent company and three subsidiaries – following these investigations. (eg, in the area of horizontal cooperation between undertakings with Due the pandemic, investigations – in particular on-site inspections regard to supply chains or any other issues), it is advisable to seek and witness interviews – by the BWB have become more difficult, which the competition enforcement agencies’ guidance and opinions about will impact some pending investigations, depending on the stage and such matters. the specific circumstances of the investigation). However, the BWB’s investigatory powers, also with regard to inspections, have not been suspended. Accordingly, it may immediately resume its activities as soon as the situation stabilises.

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Pierre Goffinet and Laure Bersou Daldewolf

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? The New Belgian Competition Act of 2 May 2019 entered into force on In Belgium, cartel prohibition is contained in article IV.1 of the Belgian 3 June 2019. This new Act has mainly clarified the role of the different Code of Economic Law (CEL). The Belgian Competition Authority (BCA) bodies of the BCA and streamlined the different procedures. As regards rules on cartels that appreciably prevent, restrict or distort competition to cartel regulation, the new Act has brought an increase of the fine on a relevant Belgian market or within a substantial part of it. Under cap of 10 per cent of consolidated turnover within Belgium (for details Regulation 1/2003, the BCA should also apply article 101 of the Treaty about this cap, see below) to 10 per cent of the worldwide consolidated on the Functioning of the European Union (TFEU) in cases likely to affect turnover. This may change the incentives for companies to apply for trade between EU member states. leniency in Belgium. Moreover, the scope of the prohibition for individ- uals to conclude a cartel agreement has been clarified and enlarged. It Relevant institutions is no longer limited to individuals who have a mandate to represent the 2 Which authority investigates cartel matters? Is there concerned company but it also concerns individuals who act in relation a separate prosecution authority? Are cartel matters to the business activity of the company. adjudicated or determined by the enforcement agency, a separate tribunal or the courts? Substantive law 4 What is the substantive law on cartels in the jurisdiction? The BCA is an independent administrative authority with a legal person- ality. The BCA is directed by a managing board (the Board). The Board is According to article IV.1 CEL (which is very similar in its drafting and responsible for daily management of the BCA’s work, the identification of application to article 101 TFEU), all agreements between undertakings, priorities and management of terms, and the preparation of guidelines in all decisions by associations of corporate undertakings and all concerted antitrust matters. The Board is composed of a president, a Competition practices, the aim or consequence of which is to prevent, restrict or General Prosecutor, a chief economist and a general counsel. distort significantly competition in the Belgian market concerned or in The BCA comprises of the Investigation and Prosecution Service substantial part of that market are prohibited, and in particular those (IPS), a prosecution authority, and a decision-making body, the that consist in: Competition College. • directly or indirectly fixing purchase or selling prices or any other The IPS is entrusted with the investigation of cartel cases. Each transaction conditions; cartel case is looked into by a team of investigators who are placed • limiting or controlling production, markets, technical development under the supervision of the competition general prosecutor and a or investments; competition prosecutor to whom the case is allocated. The IPS is in • sharing markets or sources of supply; charge of handling complaints, handling and organising cartel inves- • applying, with regard to business partners, unequal conditions tigations, closing or settling cartel cases and drawing up reasoned for equivalent services, this putting them at competitive disad- draft decisions to the Competition College if the case is neither closed vantage; and nor settled. • concluding contracts subject to acceptance, by the other parties, The Competition College decides on the merits of cartel cases that of supplementary services that, by their nature or according to are not closed nor settled by the IPS. commercial usage, have no connections with the subject of such The Market Court of the Brussels Court of Appeals has exclusive contracts. jurisdiction to hear appeals lodged against the BCA’s decisions. Set up in January 2017, the Market Court consists of chambers that shall Such agreements shall be automatically null and void. specifically adjudicate on cases belonging to the exclusive competences Participating in cartel activities constitutes a restriction of conferred on the court (eg, antitrust cases). The Market Court replaced competition by object. Consequently, the BCA should not prove the anti- the former Chambers of the Brussels Court of Appeals where appeals competitive effects of an agreement on the relevant market. against the BCA’s decisions were introduced. The Market Court is said to The finding of liability does not require the knowledge of the illegal be better equipped to deal with technical cases, such as antitrust cases, nature of cartels or intention to participate in cartel activities. more expeditiously. Appeals should be introduced within 30 days as of the date of noti- fication of the decision.

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Joint ventures and strategic alliances Export cartels 5 To what extent are joint ventures and strategic alliances 8 Is there an exemption or defence for conduct that only affects potentially subject to the cartel laws? customers or other parties outside the jurisdiction?

Joint ventures and strategic alliances will be subject to cartel laws The CEL does not provide such an exemption or defence. It applies to provided that they do not amount to a concentration (ie, an operation any agreement or concerted practices that take place or produce effects where a change of control in the undertakings concerned occurs on a within the Belgian territory (or part thereof). lasting basis). For new joint ventures, it is also necessary that the newly created joint venture is full-function (ie, it has sufficient resources to Industry-specific provisions operate independently on a market, activities beyond one specific func- 9 Are there any industry-specific infringements? Are there any tion for the parents and operating on a lasting basis). industry-specific defences or exemptions? Non-concentrative alliance area agreements which fall under anti- trust rules and, in particular, under article IV.1 CEL. There is no indestry-specific infringement, defence or exemption in Belgian law. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Government-approved conduct Application of the law 10 Is there a defence or exemption for state actions, 6 Does the law apply to individuals, corporations and other government-approved activity or regulated conduct? entities? In line with EU law, a distinction should be made according to whether Article IV.1 of the Belgian Code of Economic Law (CEL) applies to any a national legislation excludes or note the possibility of competi- undertaking (including an association of undertakings), either indi- tion between companies which could still be prevented, restricted or viduals (ie, those acting in the course of a company’s activities) or distorted by the autonomous behaviour of companies. If a state action, companies. government-approved activity or regulated conduct excludes the possi- The notion of an ‘undertaking’ is very broad and encompasses any bility of competition that would still be likely to be prevented, restricted entity engaged in economic activity, regardless of its legal status or or distorted by autonomous behaviour of companies, it constitutes a financing. ‘Economic activity’ is defined as an activity of offering goods justifying cause exempting the companies from all consequences of a or services in a given market. violation of antitrust rules, both vis-à-vis the public authorities (fines of Individuals engaged in cartel activities acting in relation to the up 10 per cent of the turnover) and other economic operators (actions business activity of the undertaking may be held liable for antitrust for damages). But, if the state actions, government-approved activity or infringements. Fines ranging from €100 to €10,000 may be imposed on regulated conduct only favours the conclusion of agreements in breach individuals. Individuals may apply for immunity from fines. Individuals of antitrust rules or reinforces the effect of such an agreement, the can only be fined if the Belgian Competition Authority (BCA) found that companies remain liable under antitrust law. the undertaking concerned infringed article IV. 1 CEL or article 101 Treaty on the Functioning of the European Union (TFEU). INVESTIGATIONS

Extraterritoriality Steps in an investigation 7 Does the regime apply to conduct that takes place outside the 11 What are the typical steps in an investigation? jurisdiction (including indirect sales into the jurisdiction)? If so, on what jurisdictional basis? The Investigation and Prosecution Service (IPS) of the Belgian Competition Authority (BCA) is in charge of investigating cartels. It may Article IV.1 CEL applies to cartels that take place outside the jurisdic- initiate an investigation following a complaint, ex officio or at the request tion of the BCA provided their anticompetitive effects occur within the of a ministry, or regulators in charge of supervising an economic sector Belgian territory or a substantial part thereof. while taking into account the priorities of the BCA. The BCA could apply article 101 TFEU in cases likely to affect If the IPS considers that the information gathered is not sufficient trade between member states. The BCA should adjudicate these cases to continue investigating the case, it closes the file. In such a case, if the in cooperation with the European Commission or the national competi- investigation was following a complaint, the BCA can only close the case tion authorities (NCAs) of the member states where the case is also by a reasoned decision concluding that the complaint is inadmissible investigated. or ungrounded, or prescribed by time limitation (article IV.44 Belgian On 27 July 2015, the BCA adopted provisional measures imposing Code of Economic Law (CEL)). The IPS can also drop a complaint by a on a professional association, the Fédération Equestre Internationale reasoned decision in view of the available resources and the priorities. (FEI), the provisional suspension of an exclusivity clause (contained in This decision shall be notified by registered letter to the complainant, its World General Regulation) in several EU member states and in coun- indicating that the file can be consulted at the BCA’s premises. The tries outside the EU (among others, the United States, China, Mexico complainant may bring an appeal to the president of the BCA within a and Qatar). This decision has been confirmed by the Brussels Court of month against the decision to close the case. Appeal (see Case 2015/MR/1, Fédération Equestre Internationale, judg- If the IPS considers that the information gathered is sufficient to ment of 28 April 2016). The parties reached a settlement in January continue investigating the case, the IPS may ask the companies whether 2017. Following a new complaint on November 2017, the BCA adopted they are interested in initiating discussions on settlement proceedings. interim measures. The Brussels Court of Appeal annulled the decision In the event no settlement is reached or possible, the IPS prepares a of the BCA imposing interim measures due to an inadequate assess- statement of objections indicating the antitrust objections and defining ment. The BCA then decided to reject the request for interim measures. the infringement. The statement of objections is sent to the compa- The FEI submitted new commitments that were accepted by the BCA. nies (and individuals) concerned. They should reply to the statement of objections within two months and may access the non-confidential www.lexology.com/gtdt 33 © Law Business Research 2020 Belgium Daldewolf

version of the case file. The written phase of the investigation is then This cooperation helps the BCA to collect evidence in different closed. Based on the replies or in the absence thereof, the IPS submits jurisdictions. On the other hand, it enables the cartel participants to a draft decision to the president of the BCA. The draft decision is also claim a reduction of the fine on the basis of the non bis in idem prin- notified to the parties. In the draft decision, the IPS states the objections, ciple, should a neighbouring NCA previously penalise the company defines the infringement, and proposes a decision to be taken by the according to the same facts (see the BCA Decision of 28 February Competition College. The parties are also allowed to access the non- 2013 in Case 13–10–06 Meel and the of the Brussels Court confidential version of the case’s file. They should submit their written of Appeals of 12 March 2014 in Case 2013/MR/6 Brabomills). The observations within one month. The hearing before the Competition guidelines on the calculation of fines adopted by the BCA on 25 May College shall take place within two months of submission of the written 2020 also provide that the amount of a fine may be increased where observations. The Competition College decides on the merits of the case the companies continue or repeat the same or a similar infringement within one month after the hearing. after the European Commission, an NCA of a neighbouring country of Belgium (as listed above), or the NCA of the United Kingdom makes a Investigative powers of the authorities finding of an infringement of article 101 Treaty on the Functioning of the 12 What investigative powers do the authorities have? Is court European Union (TFEU). approval required to invoke these powers? CARTEL PROCEEDINGS Members of the IPS may conduct unannounced inspections with the prior authorisation of an examining judge (dawn raids). In this case, they can Decisions access the premises of the undertakings, transport means and any other 15 How is a cartel proceeding adjudicated or determined? locations where relevant information may be found. Members of the IPS can also access homes of the directors and other employees of the under- The Competition College of the Belgian Competition Authority (BCA) will takings. Moreover, they can question the undertaking’s staff regarding adjudicate a cartel case following Belgian or EU antitrust rules. facts or documents relating to the purpose of the inspection warrant. The It shall decide on the merits of the case based on a draft decision members of the investigation team may seize elements relative to their prepared by the BCA’s Investigation and Prosecution Service (IPS). The investigation. They may review information and documents, both in paper Competition College may adopt a binding decision that concludes that and electronic form, to the exclusion of documents that are either legally an antitrust infringement exists and shall order it to cease. In such privileged or out of scope of the inspection warrant. They may affix seals a case, the Competition College may impose fines or periodic penal- for the duration of their inspection without, however, exceeding 72 hours. ties. Conversely, the Competition College may decide that no antitrust They may also announce that they will visit the premises of a infringement exists, provided that it does not affect trade between company without the prior authorisation of a judge (but they cannot member states. seize any element). The Competition College may adopt interim measures intended Members of the IPS may send a request for information to a to suspend the effects of an allegedly anticompetitive practice under company or an association of corporate undertakings. The request for investigation. Interim measures will be adopted if there is an urgent information indicates a deadline within which the information should be need to avoid a situation likely to cause serious, imminent and irrep- provided. The request for information may be sent either under article arable damage to undertakings whose interests are affected by such IV.40(2) or article IV.40(1) CEL. In the latter case, the provision of inac- practices or likely to harm the general economic interest. curate or incomplete information or the absence of response within the Judicial courts may also adjudicate concerted practices under deadline may amount to the imposition of fines or penalties. Belgian or EU antitrust rules. Judicial courts may decide whether a The members of the IPS may hear any witness, both orally and in practice constitutes an antitrust infringement. They may adopt a cease- written and draft minutes of any statement made by any witness or of and-desist order and declare the agreement null and void. On this basis, any infringement or fact (which constitutes prima facie evidence). judicial courts may also award damages in private litigation. However, they are not entitled to impose fines or remedies. INTERNATIONAL COOPERATION Burden of proof Inter-agency cooperation 16 Which party has the burden of proof? What is the level of 13 Is there cooperation with authorities in other jurisdictions? If proof required? so, what is the legal basis for, and extent of, such cooperation? There is no specific rule on the burden of proof in antitrust matters. The Belgian Competition Authority (BCA) is a member of the European Each party should demonstrate the elements it invokes. Regarding the Competition Network (ECN), the European Competition Authorities standard of proof, the BCA applies the same rules as the European (ECA), the International Competition Network (ICN) and the Competition Commission (ie, sufficiently precise and consistent evidence to establish Committee of the OECD. the existence of an infringement). Before the BCA, the burden of proof of an antitrust infringement Interplay between jurisdictions rests on the IPS. However, companies can demonstrate that the agree- 14 Which jurisdictions have significant interplay with your ment falls within the scope of an EU Block Exemption Regulation or jurisdiction in cross-border cases? If so, how does this affect challenge the IPS’s finding on the existence of appreciably restric- the investigation, prosecution and penalising of cartel activity tive effects. in cross-border cases in your jurisdiction?

The BCA cooperates significantly with the national competition authori- ties (NCAs) of neighbouring countries (ie, France, Luxembourg, Germany and the Netherlands), as well as the United Kingdom. After Brexit, coop- eration with the UK authorities might be affected.

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Circumstantial evidence Civil and administrative sanctions 17 Can an infringement be established by using circumstantial 20 What civil or administrative sanctions are there for cartel evidence without direct evidence of the actual agreement? activity?

The BCA may use circumstantial evidence in cartel cases, either Participation in cartel activities may lead to the imposition of administra- exclusively or together with direct evidence. However, circumstantial tive fines. evidence is often used in conjunction with direct evidence. Circumstantial The BCA’s Competition College may impose fines of up to 10 per evidence is considered as a whole, in light of its cumulative effect, and cent of the worldwide consolidated turnover (depending on whether not on an item-by-item basis. the infringement took place before or after the entry into force of New Belgian Competition Act (3 June 2019)). Upon a request from the BCA’s Appeal process Investigation and Prosecution Service (IPS), the Competition College 18 What is the appeal process? may impose daily penalties of up to 5 per cent of the average daily turn- over in the case of non-compliance with the relevant decision. Decisions adopted by the Competition College may be appealed to the Fines of between €100 and €10,000 can be imposed on individuals Market Court within 30 days of the date of their notification. An appeal having participated in cartel activities. may be lodged by: Judicial courts adjudicating a cartel case are not entitled to • the undertaking or the individual concerned; impose fines. • the complainant; • any party with a sufficient interest and authorised to be heard by Guidelines for sanction levels the Competition College; or 21 Do fining or sentencing principles or guidelines exist? If yes, • the Ministry of Economy. are they binding on the adjudicator? If no, how are penalty levels normally established? What are the main aggravating The IPS cannot appeal the decisions of the Competition College. and mitigating factors that are considered? The Market Court of the Brussels Court of Appeals decides with full jurisdiction, including the power to substitute the contested deci- On 3 September 2020, the BCA adopted new guidelines on the calcula- sion with its own decision. However, on 20 December 2013, the Belgian tion of fines. They are based on the guidelines on the method of setting Supreme Court decided that the full jurisdiction of the Market Court fines adopted by the European Commission in 2003, which have been in antitrust matters is limited to the infringements established by the adjusted to account for Belgian specificities. They are not binding on the Competition College. Accordingly, the Market Court cannot rule on facts BCA. However, varying for them requires a strong and well-reasoned or elements that have neither been adjudicated by the Competition justification. College nor taken into account by the IPS in its reasoned decision. According to the BCA’s 2020 guidelines, the BCA shall apply the Furthermore, the Market Court cannot exercise its full jurisdiction in European Commission’s guidelines on the method of setting fines. cases regarding the application of article 101 Treaty on the Functioning However, the BCA’s guidelines contain adjustments concerning the of the European Union (TFEU). In such cases, the Belgian Supreme value of sales to take into account, and the leniency and settlement Court decided that the competence of the Market Court is limited to the programmes. (total or partial) annulment of the Competition College’s decisions (see The basic amount of the fine will be related to a proportion of the case H.13.0001.F). value of the sales achieved in Belgium (15 to 25 per cent), depending on An appeal does not suspend the effects of a contested decision; the degree of gravity of the infringement, multiplied by the number of however, the parties can request the Market Court suspend these years of infringement. The basic amount may then be adjusted in light effects. The standard for obtaining a suspension measure is very high of mitigating or aggravating circumstances. (ie, the applicant should demonstrate that its grounds of appeal on the The basic amount may be increased in the case of aggravating merits are prima facie serious and that it is urgent to remedy imminent circumstances, such as a refusal to cooperate or the fact that an under- damage which is serious and difficult to repair, if not irreparable (eg, taking undertook the role of leader. The basic amount of the fine may Case 2015/MR/1, Fédération Equestre Internationale, judgment of 22 also be reduced in the case of mitigating circumstances, such as the October 2015)). circumstance that the anticompetitive conduct has been authorised or The Market Court may ask the BCA to communicate the procedural encouraged by public authorities or legislation. file and other documents submitted at the BCA. The final amount of the fine shall not, in any event, exceed 10 per Finally, the Competition College’s decision to dismiss a request for cent of the worldwide consolidated turnover in the preceding business interim measures may also be appealed to the Market Court within 30 year of the company or association of corporate undertakings partici- days of the date of its notification. pating in the antitrust infringements. Finally, if a settlement is reached with the undertaking, the amount SANCTIONS of the fine is first calculated on the basis of the guidelines and then further reduced owing to the settlement (ie, a supplemental reduction of Criminal sanctions 10 per cent of the final amount of the fine is applied by the BCA). 19 What, if any, criminal sanctions are there for cartel activity? Compliance programmes There are no criminal sanctions for antitrust infringements, except in bid 22 Are sanctions reduced if the organisation had a compliance rigging cases of public procurements where imprisonment or payment programme in place at the time of the infringement? of fines may be imposed by a criminal court. Individuals found guilty of improper use of information obtained Compliance programmes are not considered to constitute a mitigating in the course of an investigation or for breaking seals affixed by the circumstance taken into account in the setting of fines. Belgian Competition Authority (BCA) can also face criminal sanctions.

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Director disqualification Purchasers that acquired the affected product from non-cartel 23 Are individuals involved in cartel activity subject to orders members also have the ability to bring claims based on alleged parallel prohibiting them from serving as corporate directors or increases in the prices they paid. officers? There are no double, treble or exemplary damages available under Belgian law. The Belgian Corporate Code provides that directors and officers may The unsuccessful party should pay the procedural indemnity. It be held liable for fault made in the management of the company. In varies between a minimum of €150 and a maximum of €30,000. such a case, they could be suited both by the company for damages under contractual liability and victims for damages under law Class actions (extra-contractual liability). However, there is no prohibition for involved 27 Are class actions possible? If so, what is the process for such individuals to serve as directors or officers. cases? If not, what is the scope for representative or group actions and what is the process for such cases? Debarment 24 Is debarment from government procurement procedures Since 1 September 2014, a collective redress mechanism has been automatic, available as a discretionary sanction, or not available under Belgian law for consumers seeking to obtain compen- available in response to cartel infringements? sation from antitrust rules infringements (although it is not limited to antitrust matters). Public authorities may debar from a public procurement procedure Class actions may only be filed by accredited consumers’ protec- an applicant or a tenderer who participated in cartel activities (less tion associations acting as a group representative. The Brussels Courts than three years ago). The debarment may occur at any stage of the have exclusive jurisdiction to adjudicate claims filed through a collective procedure. The debarment is not automatic and is not available if the redress mechanism. applicant or tenderer has demonstrated to have adopted measures to The mechanism is based both on an opt-in and opt-out system. prove its reliability (like self-cleaning measures). For consumers living in Belgium, they should express their willingness not to participate in the collective action (an opt-out mechanism). For Parallel proceedings consumers not based in Belgium, they should express their willingness 25 Where possible sanctions for cartel activity include criminal to be part of the collective action (an opt-in mechanism). However, in and civil or administrative penalties, can they be pursued both cases, the consumers should express their interest to participate in in respect of the same conduct? If not, when and how is the the collective action regarding physical and/or moral damages. choice of which sanction to pursue made? If the parties have concluded an agreement before the filing of the action with the Brussels Court of Appeals, the Court could be asked to Under Belgian law, cartel activities can be sanctioned with administra- homologate the agreement. In the absence of such an agreement, the tive fines but not with criminal penalties. As regards to bid rigging of Brussels Court of Appeals should first judge on the admissibility of the public procurements, parallel proceedings are possible by the BCA and action. If admissible, the Brussels Court of Appeals should fix a time limit a criminal court. However, the lack of cooperation between both authori- enabling the parties to reach an agreement regarding compensation for ties may justify the application of the non bis in idem principle. the harm suffered. Such an agreement will then be homologated by the Judicial courts can also condemn undertakings involved in cartel Brussels Court of Appeals but shall not constitute a finding of liability of activities to the payment of damages. the defendant. If no agreement has been concluded, the Brussels Court of Appeals shall decide on the merits of the case. PRIVATE RIGHTS OF ACTION The Brussels Court of Appeals shall appoint a liquidator in charge of distributing the damages among the plaintiffs, based either on an Private damage claims agreement or a judicial decision. 26 Are private damage claims available for direct and indirect On 22 March 2018, the Belgian parliament approved a bill of law purchasers? Do purchasers that acquired the affected extending the scope of the class action provisions to small and medium- product from non-cartel members also have the ability to sized enterprises. bring claims based on alleged parallel increases in the prices they paid (‘umbrella purchaser claims’)? What level of COOPERATING PARTIES damages and cost awards can be recovered? Immunity Plaintiffs can lodge an action with the judicial courts. The action would 28 Is there an immunity programme? If so, what are the basic be based either on tort law (article 1382 of the Belgian Civil Code) or on elements of the programme? What is the importance of being contractual law (article 1142 of the Belgian Civil Code). In both cases, ‘first in’ to cooperate? the plaintiff should demonstrate a fault, a damage and a causal link (such a causal link is assumed in the case of an established cartel). If The Belgian leniency programme is set out in article IV.54 of the Belgian based on tort law, the action should be filed within five years as from Code of Economic Law (CEL) and the Leniency Guidelines of the Belgian the moment the plaintiff knows or should have known of the facts giving Competition Authority (BCA) of 6 May 2020. The leniency programme rise to liability. If based on contractual law, the action should be filed is only applicable to cartels (including hub-and-spoke infringements). within 10 years. Under the leniency programme, companies and associations Compensation is only available for the loss incurred by the plain- of corporate undertakings and individuals can obtain immunity for tiff (be it the direct or indirect purchaser). In line with article XVII.83 of infringement of the cartel prohibition found by the BCA. the Belgian Code of Economic Law (CEL), judicial courts may take into For companies and associations of corporate undertakings that account a passing-on defence invoked by the defendant (ie, the possi- apply first, full immunity (Type 1) from fines is available. Type 1 can be bility to mitigate the company’s liability by demonstrating that all or part obtained in two types of situations (Type 1A and Type 1B) and provided of the overcharges were passed on the victims’ customers). that the applicant has not coerced another company or association of

36 Cartel Regulation 2021 © Law Business Research 2020 Daldewolf Belgium corporate undertakings to participate in a cartel and complies with the The first applicant for immunity can obtain full immunity from the obligation to cooperate. Immunity type 1A is granted if: fine whereas for subsequent applicants only fine reductions are avail- • the applicant is the first to submit information and evidence that able. The second applicant can obtain a fine reduction in the range of enables the BCA to carry out targeted inspections in connection with 30 to 50 per cent, a 20 to 40 per cent reduction can be obtained by the the alleged cartel; and third applicant, and, finally, a 10 to 30 per cent reduction is available for • the BCA does not, at the time of the application, have enough infor- subsequent applicants. mation to justify an inspection. There is no ‘immunity plus’ or ‘amnesty plus’ option available under Immunity type 1B is granted if: Belgian law. • the applicant is the first to submit information and evidence that enables the BCA to establish an infringement; Approaching the authorities • the BCA did not have sufficient evidence to find an infringement in 31 Are there deadlines for initiating or completing an application connection with the cartel; and for immunity or partial leniency? Are markers available and • no undertaking or association of undertakings is already granted what are the time limits and conditions applicable to them? full immunity (Type IA) in connection with the same infringement. Leniency or immunity applicants may contact the Competition General For individuals, such as directors or senior employees of parties to a Prosecutor anonymously or through by placing a ‘marker’ (ie, an applica- cartel, immunity from fines is available if: tion protecting the rank of the applicant) to verify whether immunity is • the individual is involved in one or more of the prohibited practices still available. Once the Competition General Prosecutor confirms that of , output limitation or market allocation; and immunity is available, the applicant must immediately apply for immu- • the individual contributes to proving the existence of these prohib- nity if it has anonymously contacted the Competition General Prosecutor ited practices, by providing information the BCA did not have at or within two weeks if a marker has been submitted. This period of two the time of the application or acknowledging its participation in weeks can be extended by the Competition General Prosecutor dependent the cartel. on the cooperation of the applicant in the collection of evidence. After the submission of an immunity or leniency application (and Both companies and individuals must also respect other procedural when the investigation is sufficiently advanced if the Competition General conditions to benefit from full immunity (among others): Prosecutor has decided to open proceedings), the Competition General • the applicant cooperates genuinely, fully, on a continuous basis and Prosecutor submits a draft opinion to the Competition College setting expeditiously; out the reasons why the applicant should or should not benefit from • the applicant cannot contest any fact communicated to the BCA in the immunity. The applicant shall then have eight business days to submit context of its leniency application or the existence of the practices; its observations. The Competition College shall decide upon the condi- • the applicant has an obligation not to disclose the facts or any of the tional or provisional immunity or leniency within 20 days of receiving the contents of its application; and draft opinion. • the applicant ends its involvement in the alleged cartel, except if agreed otherwise with the Competition Prosecutor. Cooperation 32 What is the nature, level and timing of cooperation that is Subsequent cooperating parties required or expected from an immunity applicant? Is there any 29 Is there a formal programme providing partial leniency for difference in the requirements or expectations for subsequent parties that cooperate after an immunity application has been cooperating parties that are seeking partial leniency? made? If so, what are the basic elements of the programme? If not, to what extent can subsequent cooperating parties expect Immunity applications can be made by a company, association of corpo- to receive favourable treatment? rate undertakings or an individual who has been involved in a cartel. The applicant should be the first to submit evidence to the BCA. The For companies and associations of corporate undertakings that coop- level of cooperation is significantly higher than for a subsequent erate after an immunity application has been made, partial immunity applying company. (Type 2) can be obtained. They should provide the BCA with evidence of An individual who participated in a cartel can apply for immunity the alleged cartel that represents significant added value relative to the from fines. The standard for obtaining immunity is high but not as high evidence already in the authority’s possession at the time of the applica- as for companies. In the event an individual did not apply for immunity, tion and if they meet all other procedural conditions to qualify for leniency he or she can only be prosecuted and found guilty if a company is also (genuine, full, continuous and expeditious cooperation, the confidentiality prosecuted and found guilty for the same offences. of the leniency application, ending of the alleged cartel, etc). Regarding individuals, full immunity applies no matter the rank of Confidentiality their leniency application. However, the immunity applications of natural 33 What confidentiality protection is afforded to the immunity persons are not taken into account to determine the rank of an under- applicant? Is the same level of confidentiality protection taking. In other words, a company could benefit from full immunity applicable to subsequent cooperating parties? What despite the fact that an individual was the first to apply for immunity. information will become public during the proceedings and when? Going in second 30 How is the second cooperating party treated? Is there an Applications for immunity or leniency will be treated in a confidential ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, manner. Consequently, access to the immunity application is restricted how does it operate? to the addressees of the draft decision (statement of objections) and granted subject to the condition that it will not be used for any other The Belgian leniency programme is based on the first-come, first-served purposes but the procedure in which the immunity application was principle. made. Third parties and private litigants do not get access to the www.lexology.com/gtdt 37 © Law Business Research 2020 Belgium Daldewolf

immunity applications: the BCA is explicitly prohibited from transferring The leniency or immunity application is deemed to be submitted at the immunity applications to the national courts for the purpose of awarding meeting with the Competition General Prosecutor. compensation for private damages. The BCA can only transfer the appli- Leniency or immunity applicants shall be required to submit a cations of a company to the European Commission or to other national corporate statement containing: competition authorities (NCAs) under the conditions of the European • the name and address of the leniency applicant and of the other Competition Network (ECN) Notice, and if the receiving NCA guarantees companies that participated in the cartel; the same level of protection against disclosure as the BCA. • name and functions of the employees involved in the cartel activities; and Settlements • a detailed description of the alleged cartel arrangement, including, 34 Does the investigating or prosecuting authority have the for instance: ability to enter into a plea bargain, settlement, deferred • its aims, activities and functioning; prosecution agreement (or non-prosecution agreement) or • the product or service concerned; other binding resolution with a party to resolve liability and • the geographic scope; penalty for alleged cartel activity? What, if any, judicial or • the duration of and the estimated market volumes affected by other oversight applies to such settlements? the alleged cartel; and • the specific dates, locations, content of and participants in During the investigation but before the submission of the draft decision alleged cartel contact. on the merits, the BCA’s Investigation and Prosecution Service (IPS) can ask the companies if they are interested in starting discussions in Evidentiary elements should accompany the corporate statement as order to conclude a settlement agreement. If so, the IPS indicates the well as information about the leniency applications submitted in other range of fines that would be imposed on the company outside a settle- countries. ment procedure. The IPS issues a draft decision based on the bilateral Summary applications may be filed with the BCA in cases where an discussions where it identifies the objections and the infringements. The immunity or leniency application has been submitted to the European parties can submit observations on the draft decision. The parties are Commission. Summary applications should include a short description authorised to access the non-confidential version of the case’s file. of the cartel activities, including the identities of its participants, the To reach a settlement agreement, the company must acknowl- estimated duration, the products concerned and the affected territories. edge its participation in the cartel activities as well as its liability. The Leniency or immunity applications may be made orally in the prem- companies should also agree on the indicated fine. The IPS would ises of the BCA, unless the applicant has disclosed the content to third then reduce the final amount of the fine by 10 per cent. Moreover, it is parties. The IPS shall record and transcript the content of the oral applica- always possible to persuade the IPS to reduce the scope of objections tion. The application is entitled to verify the accuracy of the transcription. during the bilateral discussions. In addition, a commitment to pay claims Leniency applicants may request to obtain a marker from the resulting from private damage actions can be taken into account in the Competition General Prosecutor. Such a request can be made orally or setting of the fine. Finally, settling companies also agree not to appeal by a written application and should include: the decision based on a settlement. • the name and the address of the applicant; • the reasons for requesting a marker; Corporate defendant and employees • the participants in the cartel; 35 When immunity or partial leniency is granted to a corporate • the products concerned; defendant, how will its current and former employees be • the affected territories; treated? • the nature of the cartel; and • its duration. Since the entry into force of the CEL, individuals may be found liable for antitrust infringements. Accordingly, employees or former employees The Competition General Prosecutor shall adopt a decision regarding of a company involved in cartel activities may be held liable, even if the the marker request and provide the applicant with a deadline within company obtained immunity from or a reduction of the fine. which additional information should be provided (the first deadline is However, employees and former employees involved in cartel usually two weeks). activities may apply for immunity from fines if they cooperate in the Following receipt of the leniency or immunity application (and demonstration of the infringement. Individuals may do so regardless when the investigation is sufficiently advanced if the Competition of the rank of their application. Moreover, applications from individuals General Prosecutor has decided to open proceedings), the Competition will not necessarily deprive the companies from full or partial immunity. General Prosecutor submits a draft ‘opinion’ to the Competition College. If the Competition College considers that the full immunity application Dealing with the enforcement agency meets all the requirements, it decides to provisionally grant full immu- 36 What are the practical steps for an immunity applicant nity. Conversely, if it decides that the full immunity application does not or subsequent cooperating party in dealing with the meet all of the requirements, it may decide to provisionally grant partial enforcement agency? immunity from fines. If the applicant fulfils all the requirements to obtain full or partial Companies or individuals willing to file an application for immunity or immunity, the final decision adopted by the Competition College on the leniency can contact the Competition General Prosecutor to schedule a merits would grant the definitive full or partial immunity. meeting. Immunity or leniency applicants must provide: Immunity or leniency applications and summary applications • the identities of the cartel participants; should be made in one of the official languages in Belgium (ie, Dutch, • the products concerned and the affected territories; French or German). However, they can also be made in English, • the nature of the cartel activities; and provided that a translation into one of the Belgian official languages • its estimated duration. is submitted within two business days (or within a longer period as agreed with the Competition General Prosecutor). Evidentiary elements

38 Cartel Regulation 2021 © Law Business Research 2020 Daldewolf Belgium should be submitted in their original language (the Competition General Moreover, in case of settlements, the IPS may take into account a Prosecutor can, however, request a translation). commitment from the cartel participant to grant compensation for the damage inflicted on private victims in setting the fine to be imposed. DEFENDING A CASE Accordingly, overlapping liability for damages in other jurisdictions could normally be indirectly taken into account by the BCA (see article Disclosure IV.60(1) Belgian Code of Economic Law (CEL)). 37 What information or evidence is disclosed to a defendant by the enforcement authorities? Getting the fine down 43 What is the optimal way in which to get the fine down? A defendant may access the case file of the Investigation and Prosecution Service (IPS) of the Belgian Competition Authority (BCA). The undertaking may enter into the leniency programme and into settle- The file contains the documents and data used by the IPS to make the ment to avoid or reduce the amount of the fine. statement of objections sent to the companies or to write the draft deci- Undertakings may invoke mitigating circumstances to obtain a sion submitted to the Competition College (ie, it includes the immunity reduction of the total amount of the fine imposed by the BCA. However, and leniency applications of all the applicants). However, the access compliance initiatives are not considered to constitute a mitigating is limited to the non-confidential documents contained in the file. The circumstance. In the case of settlement, a commitment to pay claims confidential nature of documents is determined on a case-by-case basis resulting from private damages actions can lead to a reduction with regard to each natural or legal person accessing the file. In any of the fine. event, a defendant could not access settlement proposals. UPDATE AND TRENDS Representing employees 38 May counsel represent employees under investigation in Recent cases addition to the corporation that employs them? When should 44 What were the key cases, judgments and other developments a present or past employee be advised to obtain independent of the past year? legal advice or representation? On 8 May 2019, the Market Court of the Brussels Court of Appeals Counsel may represent both a company and its employees involved in dismissed as inadmissible the appeal lodged by the Great Circle against cartels activities, provided that their respective interests are aligned. a decision of the Belgian Competition Authority (BCA) rejecting its request for interim measures. The Great Circle complained to the BCA Multiple corporate defendants that the Royal Meteorological Institute of Belgium abused its dominant 39 May counsel represent multiple corporate defendants? Does position and requested interim measures. it depend on whether they are affiliated? This case specifies the Market Court’s power to review the deci- sions adopted by the BCA. The Market Court should first decide that Counsel may represent multiple companies involved in cartels activi- the contested decision is irregular or illegal (sensu lato) before substi- ties, provided there are no conflicts of interests. tuting its own assessment. The Market Court shall limit its review to questions as to whether the procedural requirements and the condi- Payment of penalties and legal costs tions for the statement of reasons are complied with, and shall review 40 May a corporation pay the legal penalties imposed on its the regularity and legality of the decision, including compliance with employees and their legal costs? the general principles of sound administration sensu lato. As for the merits of the case, the court limits its review to the question of whether Companies may commit to pay legal penalties imposed on its employees the facts are reproduced accurately and whether there is no manifestly and bear the legal costs incurred from their defences. inaccurate assessment of the facts and whether the legal characteri- sation of the facts is correct (full jurisdiction implies the possibility of Taxes establishing, reviewing and rectifying any errors committed when they 41 Are fines or other penalties tax-deductible? Are private are established). The court considers whether the reasons invoked by damages payments tax-deductible? the BCA constitute a framework of relevant facts in order to be able to lead to the challenged decision and these facts and factual elements Neither fines, penalty payments nor damages awards are tax-deductible sensu lato may serve as a basis for the conclusions drawn therefrom. under Belgian law. Based on those principles, the Market Court decided that it could only grant interim measures provided that it has found prima facie an ille- International double jeopardy gality, which it had not in this particular case. 42 Do the sanctions imposed on corporations or individuals take In two decisions adopted in 2019, the BCA imposed a fine of more into account any penalties imposed in other jurisdictions? In than €1 million on the Professional Organisation of Pharmacists for private damage claims, is overlapping liability for damages in infringement of article IV.1 Belgian Code of Economic Law (CEL) and other jurisdictions taken into account? article 101 Treaty on the Functioning of the European Union (TFEU). In the first decision, the BCA decided that the Professional Organisation The BCA may take into account fines imposed in other jurisdictions in of Pharmacists adopted exclusionary measures against MediCare- setting the amount of the fines imposed on the company if a national Market, which is a retailer of both medicines and health products. competition authority (NCA) has already penalised a company according The Professional Organisation of Pharmacists attempted to prevent to the same facts, in line with the non bis in idem principle (see the BCA MediCare-Market from engaging in pharmacy and healthcare activi- Decision of 28 February 2013 in case 13–10–06 Meel and the judgment ties, including through disciplinary and judicial proceedings. The BCA of the Market Court of the Court of Appels of 12 March 2014 in case noted the prices of medicines in Belgium were particularly high and that 2013/MR/6 Brabomills). the Professional Organisation of Pharmacists could not invoke public www.lexology.com/gtdt 39 © Law Business Research 2020 Belgium Daldewolf

service obligations to justify anticompetitive practices. The BCA found that the Professional Organisation of Pharmacists engaged in restric- tion of competition by object, while it nevertheless concluded that the practices under scrutiny had adverse competition effects. On 8 January 2020, the Market Court upheld the BCA’s decision, while inviting the BCA to recalculate the fine. According to the Market Court, the applicable provisions at that time prevented the BCA from calculating the fine cap of 10 per cent by adding the turnover of the members of the Professional Organisation of Pharmacists. In the Pierre Goffinet [email protected] second decision, the BCA imposed a fine of €225,000 on the Professional Organisation of Pharmacists by adopting a code of conduct preventing Laure Bersou advertising of non-pharmaceutical products. On 15 October 2019, the [email protected] BCA accepted the commitments offered by the Professional Organisation of Pharmacists to meet the competition concerns, such as the adoption Avenue Louise, 81 of a new Code of Ethics authorising advertising. 1050 Brussels On 1 July 2020, the BCA’s Competition College decided that the Belgium Commercial Service Agreement (CSA) concluded between Brussels Tel: +32 2 627 10 10 Airlines and Thomas Cook Belgium at the time of the acquisition of Fax: +32 2 627 10 50 Thomas Cook Airlines by Brussels Airlines in 2017 contained clauses www.daldewolf.com which, read together and given the market position of the parties, consti- tuted an infringement of article 101 TFEU (ie, requirements imposed on Thomas Cook to purchase from Brussels Airlines a certain amount of seats for specific destinations, a prohibition imposed on Brussels Airlines from selling to third-party tour operators seats on certain flights, and requirements imposed on Brussels Airlines to disclose new rotations and new destinations of third-party tour operators to Thomas Cook). However, the anticompetitive clauses have never been applied and the CSA has been terminated by Brussels Airlines following the insolvency of Thomas Cook Belgium. In view of the specific facts and the cooperation by Brussels Airlines during the proceeding, the College decided to not impose a fine.

Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

The new Belgian Competition Act of 2 May 2019 entered into force on 3 June 2019. The new Leniency Guidelines were adopted by the BCA on 6 May 2020 and entered into force on 22 May 2020. The new Guidelines on the calculation of fines were adopted by the BCA on 25 May 2020. Also on 25 May 2020, a notice regarding the possibility for the president of the BCA to issue informal opinion on the application of the competition rules to proposed practices or agreements that do not fall within the scope of the meger control rules was published in the Belgian Official Journal. Therefore, except for light technical amendments, there is no ongoing review of the Belgian legal framework and neither is one anticipated.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

The Belgian authorities have not adopted any specific legislation or regulation in competition law matters to tackle the consequences of the covid-19 outbreak.

40 Cartel Regulation 2021 © Law Business Research 2020 Brazil

André Cutait de Arruda Sampaio and Onofre Carlos de Arruda Sampaio OC Arruda Sampaio – Sociedade de Advogados

LEGISLATION AND INSTITUTIONS of fault, even if effects are not achieved (ie, even if anticompetitive effects are only potential) notwithstanding its form if it results in: Relevant legislation • limiting, restraining or in any way injuring free competition or free 1 What is the relevant legislation? initiative; • controlling the relevant market of goods or services; The current Brazilian Antitrust Act is Law No. 12,529/2011, which • arbitrarily increasing profits; or became effective on 29 May 2012 (replacing Law No. 8,884/94). Law • exercising a dominant position abusively. No. 12,529/11 is applicable to companies and individuals alike. There are additional provisions in the form of resolutions and ordinances. Article 36, paragraph 3, contains examples of types of conduct that, The individuals may also be criminally prosecuted in Brazil for cartel if resulting (or potentially resulting) in any of the above effects, can offences, according to Law No. 8,137/90. be deemed antitrust violations. Specifically, regarding a cartel, the following items of paragraph 3 are applicable: Relevant institutions • to agree, join, manipulate or adjust with competitors, in any way: 2 Which authority investigates cartel matters? Is there • the prices of goods or services individually offered; a separate prosecution authority? Are cartel matters • the production or sale of a restricted or limited amount of goods adjudicated or determined by the enforcement agency, a or the providing of a limited or restricted number, volume or separate tribunal or the courts? frequency of services; • the division of parts or segments of a potential or current market The Administrative Council for Economic Defence (CADE) is the of goods or services by means of, among others, the distribution of Brazilian antitrust agency responsible for prosecuting and adjudicating customers, suppliers, regions or time periods; and cartel cases in the administrative sphere. Two of CADE’s departments • prices, conditions, privileges or refusal to participate in are relevant for cartel cases: the General Superintendency and the public bidding. Administrative Tribunal. CADE’s General Superintendency is respon- sible for the investigation and prosecution while CADE’s Administrative Based on article 36, paragraph 3, CADE classifies a ‘cartel’ as Tribunal adjudicates the cases investigated and prosecuted by CADE’s conduct that: General Superintendency. • regulates markets of goods or services by establishing agree- In the criminal sphere, cartels are prosecuted by federal or state ments to limit or control research and technological development, criminal , who are completely independent from CADE. the production of goods or services, or impairs investment for the Criminal cases will be adjudicated by a criminal court. production of goods or services or their distribution; • limits or prevents the access of new companies to the market; and Changes • creates difficulties for the establishment, operation or develop- 3 Have there been any recent changes, or proposals for change, ment of a competitor company or supplier, acquirer or financier of to the regime? goods or services, among others.

There is a bill under discussion in the Congress that may introduce Because the Antitrust Act only establishes that the conduct that results some changes on the Antitrust Act to stimulate private damages claims in or may result in anticompetitive effects mentioned above can be (eg, introducing a ‘double damage’ policy, longer civil of limita- characterised as antitrust violations, a cartel is not a per se violation tions, inverting the burden of proof for pass-on defences). Furthermore, in Brazil. Therefore, a case-by-case analysis must be carried out, taking CADE has updated its Internal Rules, which became effective on 24 into account the circumstances and specifics of the case and the char- September 2019. acteristics of the market involved.

Substantive law Joint ventures and strategic alliances 4 What is the substantive law on cartels in the jurisdiction? 5 To what extent are joint ventures and strategic alliances potentially subject to the cartel laws? A cartel is the conduct that produces, or has the potential to produce, the effects listed in article 36 of the Antitrust Act, paragraph 3 of which exem- There is no generic exemption for joint ventures and strategic alliances. plifies the types of conduct that result (or may result) in such effects. Article 36 of the Antitrust Act provides that an antitrust violation may be Article 36 defines in general terms that conduct may be character- characterised regardless its form. ised as ‘violation to the economic order’ (antitrust violations), regardless www.lexology.com/gtdt 41 © Law Business Research 2020 Brazil OC Arruda Sampaio – Sociedade de Advogados

APPLICATION OF THE LAW AND JURISDICTIONAL REACH attorneys. The defence deadline may also be extended for an additional period of 10 days at the defendant’s request, subject to the discretion Application of the law of the Administrative Council for Economic Defence (CADE). After the 6 Does the law apply to individuals, corporations and other filing of such defences and within 30 working days (this deadline is entities? to be considered as a reference), the CADE’s General Superintendent will determine the evidence to be submitted, which may include the Law No. 12,529/2011 (the Antitrust Act) is applicable to individuals, hearing of witnesses, requesting of additional information from the public and private corporations, as well as to any associations of entities defendants, companies, associations or other entities, economic studies or individuals, whether de facto or de jure, even if temporary. Individuals and suchlike. are also criminally prosecuted. At the end of the fact-finding phase, defendants will be required to submit new statements within five working days (10 working days if Extraterritoriality there is more than one defendant represented by different attorneys). 7 Does the regime apply to conduct that takes place outside the After that, the General Superintendency shall issue its recommendation jurisdiction (including indirect sales into the jurisdiction)? If (either for the condemnation or for the shelving of the case) and forward so, on what jurisdictional basis? the records to CADE’s Administrative Tribunal for a final decision. The case will be randomly assigned to a Reporting Commissioner The Antitrust Act applies to antitrust violations (even if potential) that at the Tribunal. The Reporting Commissioner may request that CADE’s occur within Brazilian territory and to those that take place outside Attorney General’s Office or a federal prosecutor issue their opinions Brazil’s borders but may have direct or indirect effects in Brazil. within 20 days. In other words, international cartels that result or may result in The Reporting Commissioner may also determine supplemen- direct or indirect effects within Brazilian territory are under the jurisdic- tary fact-finding steps at his or her discretion. After supplementary tion of the Administrative Council for Economic Defence (CADE), even if fact-finding, the defendants shall submit their final statements within no illegal conduct is carried out in Brazil. 15 working days (30 working days if there is more than one defendant represented by different attorneys). Export cartels After that, the Reporting Commissioner will schedule the trial for 8 Is there an exemption or defence for conduct that only affects the case. The takes place during a public hearing at CADE’s customers or other parties outside the jurisdiction? plenary session. The final decision by the Tribunal may only be chal- lenged before the federal courts. There is no specific exemption in the Antitrust Law regarding export cartels. Investigative powers of the authorities It should be mentioned that on September 2018 CADE’s 12 What investigative powers do the authorities have? Is court Administrative Tribunal adjudicated a case in which the American approval required to invoke these powers? Natural Soda Ash Corporation (ANSAC) was charged as an export cartel that allegedly violated the Antitrust Law. CADE carried out an analysis CADE’s General Superintendency is responsible for investigating anti- based on the rule of reason and on the possible harmful effects of trust violations, including cartels. ANSAC’s exports into the Brazilian market. The Tribunal concluded that While conducting the investigation, the General Superintendency ANSAC’s exports to Brazil did not result in harmful effects to the compe- has the power to request information and documents from any indi- tition on the Brazilian market and thus shelved the case. vidual or legal entity, state bodies and authorities, whether public or private. Industry-specific provisions The General Superintendency can also summon any individual or 9 Are there any industry-specific infringements? Are there any legal entity (whether private or public) for a hearing. industry-specific defences or exemptions? Refusal to comply with CADE’s request is punishable with a daily fine starting from 5,000 reais, which may be increased up to 20 times if There are no industry-specific infringements, defences or exemptions necessary to ensure its effectiveness (article 40 of Law No. 12,529/11). in the Antitrust Act. However, the Brazilian Constitution guarantees the right against self-incrimination, in the sense that a witness may remain silent if the Government-approved conduct answer may result in self-incrimination. If the request for information 10 Is there a defence or exemption for state actions, (RFI) demands a written answer, the company or individual may also government-approved activity or regulated conduct? refuse to answer in case of self-incrimination, but it is important to submit a document in compliance with the defined deadline stating that There are no exemptions in the Antitrust Act. it will remain silent, otherwise there is the risk of being punished by not complying with the RFI’s deadline. INVESTIGATIONS The General Superintendency may conduct inspections at the head offices, establishments, offices, branches or subsidiaries of the investi- Steps in an investigation gated company where inventories, objects, papers of any nature, as well 11 What are the typical steps in an investigation? as commercial books, computers and electronic files may be searched. An inspection is dependent on the agreement of the company. Such an Following the initiation of the administrative process, all defendants are agreement is necessary because according to the Brazilian Constitution, served. The defendants shall provide their defences within 30 days. The the same law that makes a home inviolable is extended to a company’s 30-day deadline starts from the date that the last defendant is served. offices or establishments. This legal barrier can only be removed by Exceptionally, in the event the records of the administrative processes agreeing to an inspection or by a court order. If the company does not are not exclusively electronic, the defence deadline may be doubled to want an inspection, it is advised to register its disagreement in case 60 days if there is more than one defendant represented by different CADE interprets inaction as an agreement.

42 Cartel Regulation 2021 © Law Business Research 2020 OC Arruda Sampaio – Sociedade de Advogados Brazil

The General Superintendency may also request, through CADE’s Criminal prosecutions are independent of administrative pros- Attorney General, a search warrant (dawn raid) in the federal court to ecutions. The criminal public prosecutor is responsible for criminal search for objects, papers of any nature, as well as commercial books, prosecutions, which are by a criminal court. computers and electronic files in the interest of an administrative inves- tigation. This situation is different from the inspection in the sense that Burden of proof the company cannot refuse to allow the search as this is a federal court 16 Which party has the burden of proof? What is the level of order. In practice, due to difficulties within the court system to grant proof required? warrants for dawn raids, the General Superintendency usually depends on evidence provided in leniency agreements to convince the federal CADE’s General Superintendency holds the burden of proof and so must judges to authorise them. sustain the charge against the defendants. Such proofs can be collected CADE’s General Superintendency does not have the power to through investigative powers of the authorities and also through leni- perform or request wiretapping or email monitoring. This is only ency or settlement agreements (TCCs) executed between the authority possible in criminal investigations through specific court authorisation and individuals or companies involved in the antitrust violation. The upon the request of the police or the criminal prosecutor. However, this standard of proof is defined case-by-case according to the market char- evidence may be used as evidence in CADE’s administrative proceed- acteristics, the dynamics of the misconduct and the evidence gathered ings. CADE recently executed a series of cooperation agreements with in dawn raids, leniency agreements and TCCs. Criminal Prosecutor’s Bureaus from different Brazilian states. Circumstantial evidence INTERNATIONAL COOPERATION 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement? Inter-agency cooperation 13 Is there cooperation with authorities in other jurisdictions? Yes, CADE uses circumstantial evidence to support condemnations. If so, what is the legal basis for, and extent of, such cooperation? Appeal process 18 What is the appeal process? Yes. The Administrative Council for Economic Defence (CADE) has signed a number of cooperation agreements with other antitrust authorities in CADE's Tribunal decision can be challenged before the federal courts. jurisdictions such as Argentina, Canada, Chile, Colombia, Ecuador, the The scope of the appeal is broad and may regard the due process, the European Union, France, Japan, Peru, Portugal, South Korea, the United merit of the case, as well as the balance of the penalties. It is impor- States, and the other states referred to as ‘BRICS’ (ie, Russia, India, tant to clarify that lawsuits in Brazil are not expeditious, usually lasting China and South Africa). By means of these agreements, the authorities between five to 10 years or more. It is also important to mention that, to may exchange non-confidential information regarding current antitrust challenge CADE’s adverse decision, it is necessary to deposit in a court’s investigations. bank account the full amount of the fine imposed by the tribunal. Recently, in a in which a defendant challenged its condem- Interplay between jurisdictions nation by CADE for cartel behaviour, the first panel of the Supreme 14 Which jurisdictions have significant interplay with your Court declared the impossibility of a judicial review of the merit of the jurisdiction in cross-border cases? If so, how does this affect case adjudicated by the Tribunal. According to the decision, CADE is the investigation, prosecution and penalising of cartel activity the entity defined by the law to define whether a conduct is capable of in cross-border cases in your jurisdiction? harming competition or not and the courts may not substitute CADE’s interpretation regarding the merits of the case. This decision has been CADE’s General Superintendency has significant interplay with US and criticised for overtaking the constitutional rights of the plaintiffs to chal- EU authorities, which has resulted in a series of international cartel lenge administrative decisions before the courts and this matter might investigations in Brazil following investigations started by US and be submitted to the analysis of Supreme Court’s Full in the future. European authorities. SANCTIONS CARTEL PROCEEDINGS Criminal sanctions Decisions 19 What, if any, criminal sanctions are there for cartel activity? 15 How is a cartel proceeding adjudicated or determined? A cartel is a federal crime defined in article 4, item II, of Law No. A cartel proceeding is adjudicated by the Administrative Tribunal of 8,137/1990. The criminal penalty for cartel activity is imprisonment the Administrative Council for Economic Defence (CADE) after CADE’s from two to five years, plus a fine. Only individuals may be criminally General Superintendency concludes the investigation. The General prosecuted for cartel offences. Superintendency is responsible for the administrative investigation and The administrative prosecution of cartels (performed by the prosecution of antitrust violations and the Tribunal is responsible for Administrative Council for Economic Defence (CADE)) has been more the final adjudication in the administrative sphere. effective than criminal prosecutions (performed by criminal public pros- At the Tribunal, antitrust violation cases, such as cartels, will be ecutors) in the past years. However, the criminal prosecution of cartels adjudicated in a public adjudication session by the Tribunal’s full court. has been increasing lately. In light of this, CADE has recently signed a The defendant has 15 minutes to orally provide the defence arguments series of cooperation agreements with Criminal Prosecutor’s Bureaus before the Reporting Commissioner reads his or her vote. After that, the from different Brazilian states. votes of other Commissioners are collected. The decisions are taken by a majority of votes. The Tribunal is composed of one president and six commissioners. www.lexology.com/gtdt 43 © Law Business Research 2020 Brazil OC Arruda Sampaio – Sociedade de Advogados

Civil and administrative sanctions introducing a ‘double damage’ policy, longer civil statutes of limitations, 20 What civil or administrative sanctions are there for cartel inverting the burden of proof for the pass-on defence). activity? Guidelines for sanction levels Administrative sanctions are imposed by the CADE Tribunal, pursuant 21 Do fining or sentencing principles or guidelines exist? If yes, to article 37 of the Antitrust Act. The main penalties are fines, such as: are they binding on the adjudicator? If no, how are penalty • for companies, a fine ranging from 0.1 per cent to 20 per cent levels normally established? What are the main aggravating of the gross revenues of the company, group or , and mitigating factors that are considered? registered in the last fiscal year before the initiation of the admin- istrative proceeding, in the field of the business activity in which Pursuant to article 37, paragraph 1 of the Antitrust Act, the Tribunal the violation occurred, which will never be less than the advantage shall consider the following criteria when imposing fines: obtained, when possible the estimation thereof; • the seriousness of the violation; • for individuals in managerial positions (eg, chief executives, direc- • the defendant’s good faith; tors and managers), directly or indirectly responsible for the • the advantage obtained or intended by the defendant; violation committed, if their fault or wilful misconduct is proven, a • the materialisation or not of the violation; fine ranging from 1 per cent to 20 per cent of the fine imposed on • the degree of damage or danger to harm free competition, the the company; and national economy, consumers or third parties; • in the case of other individuals or public or private legal entities, as • the negative economic effects produced in the market; and well as any association of persons or de facto or de jure legal enti- • the defendant’s economic status. ties, even if temporary, incorporated or unincorporated, which do not perform business activity, not being possible to use the gross The Antitrust Act also states that the fine is doubled in the event of a sales criteria, a fine of between 50,000 and 2 million reais. recurrence. However, there is no specific guideline regarding the interpretation In addition to the penalties mentioned above, pursuant to article 38 of of these criteria and they are assessed on a case-by-case basis by the the Antitrust Act, other penalties may also be cumulatively imposed Tribunal. However, recurrence is the main aggravating factor that can (together with the fines) by CADE, such as: double the fine. • the requirement to publish the adverse decision in a newspaper of There are no specific mitigating factors in the Antitrust Act, other wide circulation; than cooperation through leniency agreements or leniency or settle- • a prohibition on contracting with public financial institutions and ment agreements (TCCs) that may result in full immunity or fine of participating in biddings held by public bodies for no less than reduction, respectively. five years; • breaking up the company or a divestiture of certain assets; Compliance programmes • the recommendation to the relevant public bodies to grant compul- 22 Are sanctions reduced if the organisation had a compliance sory licences of intellectual property rights when the offence is programme in place at the time of the infringement? related to the use of these rights; • the recommendation to the relevant public bodies not to grant the A compliance programme is not usually a reduction factor in the fine payment of federal taxes in instalments or to cancel, in whole or in calculation. part, tax incentives or public subsidies; • the prohibition on performing commercial activities on their own Director disqualification behalf or as a corporate representative for a period of five years 23 Are individuals involved in cartel activity subject to orders (for individuals); prohibiting them from serving as corporate directors or • the inclusion of the perpetrator in the National Consumers Roll; and officers? • to determine any other act or measure in order to eliminate the harmful effects to the economic order. The Antitrust Act foresees the possibility of CADE imposing, as an addi- tional penalty, a professional limitation of individuals involved in a cartel Regarding civil liabilities, the Law No. 12,529/2011 (the Antitrust Act) as follows: ‘the prohibition of exercise a commercial activity in his own expressly recognises the independence between administrative and name or as a representative of the legal entity for a period of five years’. civil liabilities, meaning that a civil damages recovery lawsuit does not depend on a previous Tribunal’s adverse decision. Civil damages Debarment recovery lawsuits (individual claims or class actions) can be filed by any 24 Is debarment from government procurement procedures affected third parties, following articles 186 and 927 of the Brazilian Civil automatic, available as a discretionary sanction, or not Code, which set a general obligation to the party at fault to indemnify the available in response to cartel infringements? damages caused to others. The complainant seeking civil damages compensation must prove: There are other penalties that may also be cumulatively imposed with • the violation of the law; fines. One of them is the prohibition on contracting with public financial • the fault of the agent; institutions on participating in bids held by public bodies. If this specific • the effective damage; and ancillary penalty is imposed, it will be valid for no less than five years. • the causal link between the violation and the damage. Ancillary penalties are applied at the Tribunal’s discretion. There are some CADE precedents concerning bid rigging in which this Nonetheless, civil damages recovery lawsuits motivated by breach of was applied. the Antitrust Law remain uncommon in Brazil. There is a bill under discussion in the Congress that once approved will introduce relevant changes on the Antitrust Law to incentivise private damages claims (eg,

44 Cartel Regulation 2021 © Law Business Research 2020 OC Arruda Sampaio – Sociedade de Advogados Brazil

Parallel proceedings decision. The complaint seeking damages compensation before the civil 25 Where possible sanctions for cartel activity include criminal court must prove: and civil or administrative penalties, can they be pursued • the illegal act; in respect of the same conduct? If not, when and how is the • the fault of the agent; choice of which sanction to pursue made? • the damage; and • the causal link between the illegal act and the damage. Administrative, criminal and civil liabilities are completely independent. As a consequence, the same conduct can be prosecuted in the adminis- There is a trend that public prosecutors intensify civil damages trative and criminal spheres as well as being subject to a civil recovery lawsuits (class actions) related to cartel cases, especially regarding bid lawsuit at the same time. In practice, CADE’s decision is the fastest, so it is rigging cases. often used as evidence in both the related criminal prosecutions and civil recovery lawsuits. COOPERATING PARTIES

PRIVATE RIGHTS OF ACTION Immunity 28 Is there an immunity programme? If so, what are the basic Private damage claims elements of the programme? What is the importance of being 26 Are private damage claims available for direct and indirect ‘first in’ to cooperate? purchasers? Do purchasers that acquired the affected product from non-cartel members also have the ability to bring claims In 2000, the Brazilian leniency programme was inserted by Law No. based on alleged parallel increases in the prices they paid 10,149/00 and has been improved since then. (‘umbrella purchaser claims’)? What level of damages and cost A successful leniency application entitles the applicants to crim- awards can be recovered? inal immunity and also to full immunity against administrative fines by Administrative Council for Economic Defence (CADE), or for the fines to The Civil Code foresees the possibility of a damages claims to be brought be reduced by one-third to two-thirds, if the General Superintendency by anyone affected by the violation. Additionally, article 47 of the Law No. already had prior knowledge of the reported violation. It also entitles 12,529/2011 (the Antitrust Act) defines that private claims are independent individuals for full immunity against the antitrust criminal prosecution. of an Administrative Council for Economic Defence (CADE) investigation. On the other hand, the leniency agreement does not grant immu- Civil damages recovery is calculated by the extension of the effec- nity for civil damages recovery lawsuits. tive damages suffered by the plaintiff (that may be the direct or indirect A company or an individual is qualified for the leniency application purchasers). The civil courts accept the pass-on defence as the right to before CADE if it participated in the antitrust violation and if it fulfils the recover is to the one that effectively suffered the damages. criteria below, cumulatively: There is no precedent of civil courts regarding umbrella purchasers • it is the first to apply for the leniency in relation to the disclosed of claims against cartel members based on alleged parallel increases in violation; the prices they paid in products from non-cartel members, but the law • it ceases participation in the disclosed violation; does not exclude this possibility. • at the time of the leniency application the General Superintendency Defendants are jointly and severally liable and the claims are limited did not have enough evidence to guarantee the conviction of the to single damages. However, as mentioned above, the bill under discus- applicant; sion in the Congress intends to include the double damages and to limit • it confesses its participation in the violation; the joint liability in relation to the beneficiaries of the leniency agreement • it provides full and permanent cooperation with the investigation and of defendants that executed leniency or settlement agreements. and respective administrative process, attending any investigation It is important to clarify that private damage claims in Brazil related action when requested at its expenses; and to antitrust violations are still unusual and there are only a few cases • the cooperation results in: under discussion in the civil courts. • the identification of the other participants involved in the violation; and Class actions • information and documents that prove the disclosed violation. 27 Are class actions possible? If so, what is the process for such cases? If not, what is the scope for representative or group The effects of a leniency agreement may be extended to other entities actions and what is the process for such cases? of the same economic group and its employees. However, this exten- sion is not automatic and it is mandatory for these other entities and Class actions to recover civil damages are possible in Brazil. The following employees to adhere to the leniency agreement to be protected, also entities are entitled to file class actions: committing to all the listed obligations. It is also noted that, should leni- • the Federal Prosecutor; ency be originally proposed by an individual rather than a company • the union, the states, the municipalities and the federal district; associated with that individual, such a company cannot adhere to the • the entities and bodies of public administration, specifically those terms of the agreement. destined to defending interests and rights protected by the Consumer After the leniency agreement is executed, the investigation shall Protection Code; and be regularly carried out by CADE and the fulfilment of all commitments • an association that has been legally incorporated for at least one should be assessed when CADE’s Tribunal issues its decision on the year, which has among its institutional purposes, the protection of merits; should the Tribunal acknowledge such fulfilment, the case will interests and rights within the Code. be dismissed with relation to the applying defendant(s) and all other benefits will apply. As mentioned previously, the Antitrust Act expressly recognises the In Brazil, the eventual execution of a leniency agreement does not independence of administrative and civil liability, meaning that a civil grant any benefits to the lenients in private litigations. damages recovery lawsuit does not depend on a previous adverse CADE www.lexology.com/gtdt 45 © Law Business Research 2020 Brazil OC Arruda Sampaio – Sociedade de Advogados

Subsequent cooperating parties • the second proponent of a TCC with leniency plus: from 50 per cent 29 Is there a formal programme providing partial leniency for to 60 per cent; and parties that cooperate after an immunity application has been • for all other proponents of a TCC with leniency plus: up to made? If so, what are the basic elements of the programme? 50 per cent. If not, to what extent can subsequent cooperating parties expect to receive favourable treatment? The payment of the discounted contribution of the TCC, in such case, depends on the defendant’s fulfilment of the leniency agreement Full immunity in the leniency programme is granted only to the first regarding the new investigation. Should the defendant not comply with applicant. However, companies and individuals that apply subsequently its leniency obligations, CADE will request the TCC contribution to be may execute settlement agreements (TCCs) with the authority, quali- paid in full, according to the calculated applicable fine and the regular fying for a reduction in their administrative fine. applicable TCC discount parameters. According to the TCC programme, the companies and individuals that are defendants in an administrative proceeding may settle an anti- Approaching the authorities trust investigation if they: 31 Are there deadlines for initiating or completing an application • confess their misconduct; for immunity or partial leniency? Are markers available and • fully cooperate with the investigation; and what are the time limits and conditions applicable to them? • pay a pecuniary contribution (in the case of cartel investigation). There are no deadlines to apply for a leniency agreement. However, Going in second after the initiation of the administrative process, the applicant will 30 How is the second cooperating party treated? Is there an be qualified to receive a reduction in its fine but not full immunity of ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, CADE’s fines. It is also important to state that the leniency agreement is how does it operate? executed at the General Superintendency’s discretion and it will have a less incentive to do so after the initiation of the administrative process. The leniency programme in Brazil is only applicable to the first appli- If the applicant does not have all the necessary information and cant, therefore the second and subsequent applicants that approach documents on hand to formally submit the leniency application, it may CADE should apply for a settlement under the TCC programme. request a marker in order to secure a place at the front of the queue for Regarding the TCC programme, the main advantages are: the leniency application. • a reduction in the expected fine; The marker request may be submitted to the General • the administrative process will be suspended in relation to the Superintendency orally or in writing and shall contain the following applicant; and information (even if partially), regarding the conduct to be reported: • it does not have to pay the cost of a legal defence. • complete identification of the leniency applicant, as well as the identity of the other known companies and individuals participating In contrast to the leniency agreement, a TCC does not grant criminal in the violation to be reported; immunity for individuals. • the products and services affected by the reported violation; The reduction of the expected fines in a TCC negotiated by the • the estimated duration of the reported violation, when possible; and General Superintendency varies according to the collaboration offered • the geographic area affected by the violation (in the case of an by the applicant and the timing of the TCC application (the sooner the international cartel, it must be stated that the conduct has at least application, the larger the discount), within the ranges below: the potential to generate consequences in Brazil). • a reduction of 30 per cent to 50 per cent for the first TCC applicant; • a reduction of 25 per cent to 40 per cent for the second TCC If the marker is available, the General Superintendency will issue a applicant; statement securing the marker within five working days and will estab- • a reduction of up to 25 per cent for the remaining TCC appli- lish the deadline for the applicant to provide all relevant information cants, but subsequent reductions shall be always lower than the and documents. previous one; and There is also no deadline for applying for a TCC. However, • a reduction of up to 15 per cent if the TCC application is requested considering that the position in line for the TCC and the timing of the when the records are already at CADE’s Administrative Tribunal application (according to the phase of the administrative process) for adjudication. directly influences the amount of discount in the pecuniary contribution, it is recommended that any defendant interested in applying for a TCC In practice, for individuals in management positions, the pecuniary submits its request as soon as possible. contribution is usually defined as up to 5 per cent of the pecuniary CADE also uses a marker system to monitor TCC applicants and contribution applied to the company. For the individuals in non-manage- the level of discount in the pecuniary contribution will depend on the rial positions, it usually varies from 50,000 to 150,000 reais. position of the applicant in the TCC’s line. The date of the TCC’s marker There is also a possibility of a higher reduction for TCC applicants application is what defines the position of the applicant in the TCC’s line. called ‘leniency plus’. Such an agreement consists of the reduction by If a marker for a leniency agreement is not available, the appli- one-third to two-thirds of the applicable penalty for a defendant (company cants on the waiting list for the leniency agreement’s proposal will be or individual) that did not qualify for a leniency agreement in the conduct given the opportunity to negotiate for a TCC, if they want to, in the same under investigation, but has information regarding a different conduct chronological order they arrived for the leniency agreement’s proposal. and thus may qualify for a new leniency agreement regarding another violation that General Superintendency had no prior knowledge. Where applying for leniency plus, the following parameters for discounts on the expected fine will be applied to the TCC: • the first proponent of a TCC with leniency plus: from 53.33 per cent to 66.67 per cent;

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Cooperation Settlements 32 What is the nature, level and timing of cooperation that 34 Does the investigating or prosecuting authority have the is required or expected from an immunity applicant? Is ability to enter into a plea bargain, settlement, deferred there any difference in the requirements or expectations prosecution agreement (or non-prosecution agreement) or for subsequent cooperating parties that are seeking partial other binding resolution with a party to resolve liability and leniency? penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? The applicant of a leniency agreement must provide evidence supporting the disclosed violation and shall cooperate fully and continuously with CADE may propose a TCC to the defendants of an administrative inves- the investigation. The amount of information necessary to secure a leni- tigation. The negotiations shall be carried out either before the General ency agreement may vary from case to case. Usually, the documents Superintendency (within 60 days, extendable for another such period) requested by the General Superintendency are documents and emails or, if the case has already advanced to the Tribunal, with the appointed exchanged with competitors evidencing the reported violation. Copies of Reporting Commissioner (within 30 days, extendable for another telephone records, agendas, employee meetings and suchlike may also such period). be requested. Once a TCC is approved, and the settling defendant pays the In a TCC, the cooperation will influence the amount of discount corresponding contribution and fulfils the other agreed commit- in the pecuniary contribution. In this sense, providing more evidence ments, the case shall be suspended against such defendant and the results in an increase in the discount. fulfilment of all agreed terms shall be assessed by the Tribunal in its judgment on the merits of the main investigation. If the TCC was Confidentiality correctly fulfilled, the case before CADE is definitively dismissed with 33 What confidentiality protection is afforded to the immunity relation to the settling party (although liability remains in the civil and applicant? Is the same level of confidentiality protection criminal spheres). applicable to subsequent cooperating parties? What If a CADE decision is challenged in the federal court, CADE’s information will become public during the proceedings and Tribunal may authorise CADE’s Attorney General to terminate the when? lawsuit through a judicial agreement, which can substantially reduce the originally applied fine. The process of requesting and negotiating leniency agreements and TCCs In the criminal sphere, there is also the possibility of executing a is confidential. After these agreements are executed, their confidentiality plea bargain. will be regulated by CADE Resolution No. 21/2018 (of 5 September 2018). The following documents and information are confidential Corporate defendant and employees according to article 2 of Resolution 21/2018: 35 When immunity or partial leniency is granted to a corporate • the history of conduct (including amendments and attachments) of defendant, how will its current and former employees be leniency agreements; treated? • those listed in articles 44, section 2º, 49, 85, section 5º e, and 86, section 9º of the Law No. 12,529/2011 (the Antitrust Act), as well as The protection deriving from a leniency agreement may be extended in articles 91 to 94 and 219 of CADE’s Internal Resolution; to other entities of the same economic group and to employees. • those containing trade secrets and related to the business activity However, this extension is not automatic and it is mandatory that these of individuals or legal entities of private rights; other entities and employees adhere to the leniency agreement to be • those that constitute grounds for confidentiality under the legisla- protected. tion (article 6º, I e II of Order No. 7,724/2012); In the TCC, this extension will depend on the existence of specific • those whose confidentiality is ordered by a judicial decision; and clauses allowing the employees and former employees to adhere to • those submitted by the proponents, during the negotiation of the the TCC negotiated by the company or the existence of an umbrella leniency agreements or TCCs and not executed, while they have not clause, by which the TCC automatically covers other entities of the same been returned to the proponents or destroyed by CADE. economic group and its employees.

After the Tribunal casts its final decision regarding the case, all docu- Dealing with the enforcement agency ments will be public, except those comprised in article 2, listed above. 36 What are the practical steps for an immunity applicant According to article 3 of CADE’s Resolution 21/2018, the documents or subsequent cooperating party in dealing with the deemed confidential may be exceptionally accessed by third parties in enforcement agency? the following circumstances: • legal determination; The leniency agreement application can be divided in four phases: • specific judicial decision; and • secure a marker; • authorisation by the signatories of leniency agreements and TCCs, • negotiate and submit the content of the history of conduct (a docu- with CADE’s consent. ment with a detailed description of the conduct) and the evidentiary documents to be provided; It is important to mention that there is one precedent from the Superior • execute the leniency agreement; and Court of Justice determining the disclosure of a leniency agreement to • the final declaration of compliance of the leniency agreement the plaintiff in a Civil Damage Recovery Lawsuit. The Superior Court of by the Tribunal with consequent confirmation of immunity (such Justice decided in this case that the confidentiality of such documents declaration of compliance will happen when the Tribunal casts its is only applicable during the administrative investigation. Once the final decision regarding the administrative process). investigation was adjudicated by the Tribunal, there is no confidentiality obstacle for a civil court to access such documents relevant to evidence A TCC application can be divided into four phases: the illegal conduct that may have resulted in damages to the plaintiff. • secure a marker; www.lexology.com/gtdt 47 © Law Business Research 2020 Brazil OC Arruda Sampaio – Sociedade de Advogados

• negotiate and submit the content of the history of conduct (with a International double jeopardy detailed description of the conduct) and the documents of evidence 42 Do the sanctions imposed on corporations or individuals take to be provided; into account any penalties imposed in other jurisdictions? In • approval of the TCC by the Tribunal and its execution with the private damage claims, is overlapping liability for damages in consequent suspension of the investigations regarding the defend- other jurisdictions taken into account? ants covered by it; and • the final declaration of compliance of the TCC when the Tribunal The criterion to determine whether an anticompetitive violation falls casts its final decision regarding the administrative process. under Brazilian jurisdiction is whether it has, or has the potential to have, direct or indirect effects within Brazil. DEFENDING A CASE In this sense, the Brazilian antitrust and criminal laws are fully applicable to those situations, notwithstanding the existence of penalties Disclosure imposed by other jurisdictions. Regarding private claims, a complainant 37 What information or evidence is disclosed to a defendant by cannot sue a defendant to recover the same damages more than once, the enforcement authorities? owing to protection against double jeopardy.

According to the Brazilian Constitution, the defendants shall have full Getting the fine down access to the records (including the full content of the leniency or settle- 43 What is the optimal way in which to get the fine down? ment agreement (TCC) agreements). In this sense, it is guaranteed that all information and evidence is made available to the defendants for the The eventual adoption of a compliance programme has no influence purpose of complying with the due process of law and of guaranteeing over the fine calculation. Therefore, the best way to reduce a possible all rights of defence. fine is to cooperate through a leniency agreement or a TCC.

Representing employees UPDATE AND TRENDS 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should Recent cases a present or past employee be advised to obtain independent 44 What were the key cases, judgments and other developments legal advice or representation? of the past year?

Counsel is able to represent not only the corporation involved but also Since September 2019, the Administrative Council for Economic Defence its employees under investigation. Generally, employees are repre- (CADE) has adjudicated 10 cases involving cartels, six in 2020, two of sented by the same counsel hired by the corporation. However, in which related to international cartels with direct or indirect effects cases where conflicts of interests arise between the corporation and within Brazilian territory. Such cases involved the markets of ceramic the current or past employee, the employee shall be represented by substrates – where the investigation was dismissed due to lack of separate counsel. evidence against one defendant, while others were covered by leniency agreements or settlements – and subterranean/submarine cables – Multiple corporate defendants with fines imposed to the convicted companies ranging from 421,000 39 May counsel represent multiple corporate defendants? Does to 10.2 million reais each, and to individuals from 100,000 to 200,000 it depend on whether they are affiliated? reais each. Eleven leniency agreements were executed in 2019. In addition, It depends. It is possible if there is no conflict of interest. at the time of writing, there were 16 settlement agreements (TCCs) in different industries issued during 2020, involving auto parts, hydrom- Payment of penalties and legal costs eters, salt, electronic components, capacitors, pipework connections 40 May a corporation pay the legal penalties imposed on its and other industries. employees and their legal costs? Furthermore, during the past year, CADE has shelved four investi- gations because of a lack of evidence. Law No. 12,529/2011 (the Antitrust Act) does not prevent the company from paying individuals’ penalties or employees’ legal costs. Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed Taxes changes to the legal framework, the immunity/leniency 41 Are fines or other penalties tax-deductible? Are private programmes or other elements of the regime? damages payments tax-deductible? There is a bill under Federal Senate analysis that proposes the following Fines and other penalties imposed by CADE and private damages changes to the Law No. 12,529/2011 (the Antitrust Act): awards are not tax-deductible. • ‘double damage’ granted to the parties affected by the antitrust violation (ie, victims’ compensation is double that of the damage sustained), with the exception of defendants that executed leniency or settlement agreements (TCCs) which will only be liable to pay single-damage payments; • the interruption of the civil statute of limitation during CADE’s investigation; • the civil statute of limitation will start only after the publication of CADE’s final decision in the Official Gazette; • no jointly civil liability to the defendants that executed TCCs;

48 Cartel Regulation 2021 © Law Business Research 2020 OC Arruda Sampaio – Sociedade de Advogados Brazil

• no presumption that an undertaking passed on increased costs to customers (passing-on) in cases of a cartel – the burden of proof to show passing-on had occurred is on the defendants; • the possibility of the Federal Court granting injunctions to the affected parties in damage recovery lawsuits based on CADE’s final decision; and • the TCCs that contain the confession of participation in the inves- tigated conduct shall include the defendants’ obligation to submit itself to arbitration to repair damage suffered when an affected André Cutait de Arruda Sampaio [email protected] party takes the initiative to request arbitration. Onofre Carlos de Arruda Sampaio Currently, the proposed bill is under discussion by Brazil’s House of [email protected] Representatives. At the time of writing, two commissions of representa- tives have analysed and voted in favour of the bill. Alameda Ministro Rocha Azevedo, 882, 8th floor 01410-002 São Paulo, SP Coronavirus Brazil 46 What emergency legislation, relief programmes, enforcement Tel: +55 11 3060 4300 policies and other initiatives related to competitor conduct Fax: +55 11 3082 2272 have been implemented by the government or enforcement www.arruda-sampaio.com authorities to address the pandemic? What best practices are advisable for clients?

CADE has adopted a series of internal measures regarding the corona- virus pandemic. The most relevant are meetings and trial sessions by videoconference. Regarding anticompetitive conducts, CADE has opened an investi- gation on alleged anticompetitive conduct in the medical-pharmaceutical product industry. According to CADE, it is necessary to investigate whether companies from the sector are increasing prices and profits in an arbitrary and abusive manner after an increase in the demand for such products during the pandemic. Another highlight was CADE authorising the collaboration between seven competing companies from the food sector for a short period of time. The decision is based on the recommendations of entities such as the OECD and the International Competition Network due to the excep- tional and urgent situation. In addition, there are a few proposed laws in the Brazilian Congress, particularly regarding the freezing of prices of medicines, healthcare products and other items considered ‘essential’ during the pandemic. CADE has expressed its concerns on such measures through an economic study, noting that such price interventions may have consid- erable negative effects in the market. The authority has also expressed its concerns regarding other law projects interfering in different indus- tries, such as transportation, educational services, funerals and liquified natural gas.

www.lexology.com/gtdt 49 © Law Business Research 2020 Bulgaria

Anna Rizova and Hristina Dzhevlekova Wolf Theiss

LEGISLATION AND INSTITUTIONS for Sofia District. This amendment entered into force as of 1 January 2019 and aims to reduce the duration of appeal procedures (which Relevant legislation before SAC sometimes exceeded one year) and relieve the SAC from 1 What is the relevant legislation? being overloaded. The Administrative Court for Sofia District has never before been involved in hearing competition cases, however, in the two The relevant legislation on cartel regulation in Bulgaria is the Law on years since the changes were brought in, in the duration and efficiency Protection of Competition (LPC) promulgated in the State Gazette 102/28 of appeal procedures has significantly improved: appeals in antitrust November 2008. The cartel regulation is modelled closely on EU compe- cases now take, on average, six months. tition law. The cartel prohibition contained in the LPC mirrors article The LPC was last amended in April 2019 with a reference to the 101 of the Treaty on the Functioning of the European Union (TFEU), newly adopted Trade Secrets Protection Act (TSPA). The amendment excluding the ‘effect on interstate trade’ criterion. An English-language prescribed that a CPC decision under the LPC provisions on trade version of the LPC is available on the website of the Bulgarian competi- secrets protection does not preclude the claimant to initiate separate tion authority, the Commission for Protection of Competition (CPC). court proceedings on the basis of the TSPA, thereby clarifying that LPC and TSPA procedures are independent of each another. Relevant institutions The Directive (EU) 2019/1 (ECN+ Directive) is yet to be imple- 2 Which authority investigates cartel matters? Is there mented in Bulgaria, no draft bill is currently available. Considering a separate prosecution authority? Are cartel matters the current powers of the CPC in cartel investigations, dawn raids and adjudicated or determined by the enforcement agency, a leniency process, the ECN+ Directive is expected to enhance the CPC separate tribunal or the courts? competencies in these areas. For example, it enables the CPC to check personal premises during dawn raids, not only company-owned ones. The relevant authority investigating cartels in Bulgaria is the CPC, which is responsible for cartel investigations and enforcement of cartel prohi- Substantive law bition. The CPC also applies article 101 TFEU in relation to agreements 4 What is the substantive law on cartels in the jurisdiction? and concerted practices in Bulgaria which may also affect competition in other EU member states. Article 15 of the LPC mirrors article 101 TFEU. The LPC prohibits The CPC is an independent administrative body and has jurisdiction horizontal and vertical agreements, and concerted practices between for the entire territory of Bulgaria. The seven-strong CPC membership undertakings, that is decisions of associations of undertakings which is elected by the Bulgarian National Assembly. The CPC administra- have the objective or effect of preventing, restricting or distorting tion consists of five departments, three of which handle competition competition in the relevant market. The law provides a non-exhaustive law enforcement (Antitrust and Concentrations, Competition Law and list of prohibited agreements, such as: Policies, and Unfair Competition and Abuse of Superior Bargaining • direct or indirect fixing of prices or other trading conditions; Position). • sharing of markets or sources of supply; While conducting on-site inspections (dawn raids), the CPC may • limiting or controlling the production, trade, technical development request police assistance. or investment; The decisions of the CPC are subject to appeal before the • applying dissimilar conditions for the same type of contracts to Administrative Court for Sofia District. certain partners, whereas they are placed in competitive disad- vantage; and Changes • setting the conclusion of contracts subject to undertaking addi- 3 Have there been any recent changes, or proposals for change, tional obligations or entering into contracts by the counterparty, to the regime? which, by their nature or according to commercial practices, have no connection with the subject of the main contract. In January 2018, an amendment and supplementation (the Private Damages Amendment) to the LPC became effective, implementing into The LPC further defines cartels as: Bulgarian law the provisions of Directive 2014/104/EU on antitrust damages actions (the Private Damages Directive). [Agreements] or concerted practices between two or more In September 2018, significant amendments were made to the undertakings to coordinate their competitive behaviour on the Administrative Procedure Code, which changed the competent court relevant market or to influence the relevant competition param- to hear appeals against decisions and other acts of the CPC from eters through practices such as setting or coordinating purchase the Supreme Administrative Court (SAC) to the Administrative Court or sales prices or other trading conditions including intellectual

50 Cartel Regulation 2021 © Law Business Research 2020 Wolf Theiss Bulgaria

property rights, setting production or sales quotas, sharing to distinguish between joint ventures that will participate as separate markets and customers, including manipulating public auctions market players apart from their parent companies (and hence, shall or (bid rigging), restrictions on imports or exports or be reviewed under merger control regulations), and dependent joint anti-competitive actions against other competitors. ventures that will mainly serve the commercial needs of their parent companies (and thus, represent a form of agreement or a concerted The LPC does not set forth specific substantive law provisions for the practice between them). In the latter case, depending on the type and separate cartel infringements, rather they are viewed in the overall scope of arrangements between the joint venture parent companies and legislative framework of article 15 of the LPC and article 101 TFEU. whether they meet the above definition for cartels (eg, by fixing prices However, in its practice, the CPC – similarly to the EC – has constantly or limiting output), certain joint ventures may also qualify as prohibited viewed cartels as one of the most serious infringements of competition cartel activities. law. Following the practice of the EC and ECJ, the CPC also considered The CPC has on many occasions confirmed the approach to full that cartels – due to their direct negative result on competition – are and non-full functioning joint ventures during merger case analysis, and to be treated as ‘restrictions by object', rather than as ‘restrictions by has explicitly referred to review under article 15 of the LPC and article effect' (whereas, both qualifications are provided as alternatives under 101 if the joint venture does not meet the criteria for full-functionality. article 15 of the LPC). The CPC does not view the ‘object’ of the agree- To our knowledge, however, the CPC has not yet in practice reviewed a ment or concerted practice subjectively (ie, through the viewpoint and joint venture that is not full-functioning, as a horizontal agreement or intentions of the parties) but objectively (ie, as the logical result a cartel concerted practice (and potentially – as a cartel) under article 15 of the would produce on a competitive environment). LPC and article 101 TFEU. The ‘by object’ qualification further on defines the narrower scope We are also not aware of any practice of the CPC concerning of review by the CPC in cartel cases – namely, the CPC will not engage in strategic alliances. To the extent they may constitute an arrangement competitive effects tests and investigate particular impacts (economic between (actual or potential) competitors, strategic alliances shall be and others) produced by the cartel activity, and the limited defence of equally reviewed as a horizontal agreement or concerted practice (and, the infringing parties, which cannot rely on a lack of effects or insignifi- as the case may be, as cartels). cant effects to exempt their behaviour. Most recently, in the cartel cases of the CPC against 24 construction APPLICATION OF THE LAW AND JURISDICTIONAL REACH companies for bid-rigging practices under the National Energy Efficiency Program (decision of the CPC No. 1312 and 1313 of 5 December 2019), Application of the law the CPC re-affirmed its approach that fixing of prices and market alloca- 6 Does the law apply to individuals, corporations and other tion are abusive by their very object and nature. Consequently, the CPC entities? rejected the defence of some of the cartel participants that their cartel activity has only helped them to get in the tender short-listed candi- The Law on Protection of Competition (LPC) applies to all undertakings dates, but the cartel did not extend to the second stage of the tender performing economic activities, irrespective of their legal and organisa- where particular prices were offered and thus, it did not produce actual tional forms. These could be corporations, partnerships, associations abusive effects for the contracting authority. and professional organisations, public authorities and individuals Still, the CPC – just as the EC and the ECJ – do not treat cartels as performing an economic activity for profit, and so on. per se infringements (ie, it follows a US concept which denies the possi- The LPC also applies to individuals (in their personal capacity bility for an infringing entity to prove a cartel provides pro-competitive not as an undertaking) who have assisted in a breach under the LPC, benefits). Although it is rare, it is possible for parties to demonstrate including cartels. significant positive effects under article 17 of the LPC, similarly to article 101(3) TFEU. If successful, the cartel in question would not fall within Extraterritoriality the prohibited agreements under article 15 of the LPC. 7 Does the regime apply to conduct that takes place outside the The LPC provides a de minimis exemption for restrictive agree- jurisdiction (including indirect sales into the jurisdiction)? If ments, decisions and concerted practices that have an insignificant so, on what jurisdictional basis? effect on competition (article 16 of the LPC). However, the de minimis exemption is explicitly excluded for cartel infringements as defined by The LPC applies to market practices of undertakings that have taken LPC. A cartel will usually not fall in the available group exemptions for place outside the territory of Bulgaria if they may have an effect on horizontal agreements – the CPC applies the same group exemptions competition in Bulgaria (article 2). As long as the cartel does not affect for horizontal agreements as the EC (ie, group exemptions of certain the Bulgarian market, the LPC would not apply. categories of research and development agreements and specialisation According to article 3(1) of Council Regulation (EC) No. 1/2003 of agreements). 16 December 2002 on the implementation of the rules on competition The EU legislation, in particular article 101 TFEU, also forms part of laid down in articles 81 and 82 of the Treaty on the Functioning of the the substantive law on cartels in Bulgaria, when the cartels might have European Union (TFEU) (Regulation No. 1/2003), the Commission for a direct anticompetitive effect in other member states as well. Protection of Competition (CPC) has the authority to apply (and usually does so) article 101 TFEU in parallel with national anti-cartel provisions Joint ventures and strategic alliances if the agreement or concerted practice may affect the trade between 5 To what extent are joint ventures and strategic alliances EU member states. As part of its standard review under a cartel case, potentially subject to the cartel laws? the CPC will ex officio assess the applicability of article 101 TFEU to the case and, if applicable, will follow the EU acquis (including European Joint ventures that do not meet the requirements developed in ECJ Competition Network (ECN) cooperation procedures) regarding cross- and EC practice, and the EC Jurisdictional Notice on Concentration, border cartels. for full-functioning joint ventures, are viewed as horizontal or vertical Where a material link between the cartel and the territory of agreements under the general framework of article 15 of the LPC and Bulgaria exists and the CPC could effectively bring to an end the entire article 101 TFEU. The EU test for full-functioning joint ventures aims infringement and is able to gather evidence required to prove the www.lexology.com/gtdt 51 © Law Business Research 2020 Bulgaria Wolf Theiss

infringement, under the Commission Notice on Cooperation within the Where the CPC is competent to apply article 101 or article 102 of Network of Competition Authorities the CPC could be considered a well- the TFEU, the parties might be able to invoke the ‘regulated conduct placed authority to apply article 101 TFEU. defence’, subject to the requirements developed in the EC and ECJ case law for that defence. We are not aware if a ‘regulated conduct defence’ Export cartels has been ever brought before the CPC. 8 Is there an exemption or defence for conduct that only affects customers or other parties outside the jurisdiction? INVESTIGATIONS

The LPC does not provide for an exemption or defence for conduct that Steps in an investigation only affects customers or other parties outside Bulgaria. However, the 11 What are the typical steps in an investigation? LPC does not apply to conduct resulting in actual or possible restriction or distortion of competition in another state, unless otherwise provided A cartel investigation procedure is opened by the Commission for for by an international treaty that is in force and to which Bulgaria is a Protection of Competition (CPC) upon: party (article 2, section 2 of the LPC). • a decision of the CPC; • a request by a prosecutor; Industry-specific provisions • a written request by an affected legal entity or individual; 9 Are there any industry-specific infringements? Are there any • a leniency application; industry-specific defences or exemptions? • a request by another national competition protection authority of an EU member state; or Neither the LPC nor the secondary legislation provides for any industry- • a request by the European Commission (EC). specific infringements, defences or exemptions. The general rules, defence strategies and available exemptions (group exemptions and Most often the CPC initiates a cartel investigation based on sector de-minimis, as discussed above) would apply. It is expected that the CPC inquiries conducted by the EC or upon written request by affected will broaden the scope of possible exemptions with the new guidelines persons. Contracting authorities also notify the CPC about suspected bid expected at EU-level for sustainability agreements. These, however, rigging in public procurement tenders – in 2019-2020 the CPC started a are still being discussed between the European Commission (EC) and number of bid rigging cases based on notifications from public authori- national competition authorities (NCAs). ties. One of 2020’s most debated (but still pending) cartel investigations In several cases, the CPC explicitly mentioned that it will not in the oil and petrol sector, regarding fixing wholesale and prices exempt or accept as a defence the existence of a ‘crisis cartel’. Similarly and output between the market’s largest players, was initiated based on to the approach of the EC, the mere fact that a particular industry is notification from prosecutors and media publications. in collapse could not serve as an exemption or a mitigating factor for Although the CPC adopted and announced a leniency programme, a cartel activity, unless the parties can demonstrate pro-competitive the latter is rarely used. In fact, it was used for the first time in 2019 benefits under article 17 of the LPC, similar to article 101(3) TFEU. in a bid rigging investigation where three of the cartelists applied for leniency. Government-approved conduct An investigation is opened by a ruling of the CPC’s chairperson, 10 Is there a defence or exemption for state actions, whereby a working group (case handlers) and a supervisor from the government-approved activity or regulated conduct? CPC’s members are appointed. The working group compiles information and sends question- Competition rules only apply to state actions – as well as the activities naires for information (eg, market and financial data relevant to the of public bodies (eg, agencies, public organisations etc) – if the latter investigation of the undertaking in question). Addressees are given constitute an economic activity and may qualify the state or public approximately one month to provide the requested information. The body as an ‘undertaking’ (ie, as an equal participant on the commer- CPC does not disclose the exact behaviour it is investigating, but has cial scene). On the contrary, where a state or public body exercises its to inform those it contacts what the legal grounds for the investigation entrusted public powers and competencies, or executes a non-profit are, nor does it send a copy of the complaint. When the investigation has activity, they will not be treated as an undertaking and will not fall in been initiated following a decision by the CPC, more information on the the scope of the competition rules under the LPC or the TFEU. The particular reasons can be obtained from the CPC decision itself, which is CPC has already reviewed potential antitrust abuses by the National made publicly available on the CPC website. Confidential information is Health Fund (NHIF) and various other public authorities. It removed from the publicly available version of the decision. conducted the assessment on a case-by-case basis, with respect to each During the investigation, the case handlers are authorised to obtain particular activity conducted by the public body, and in some instances, information from market participants, associations and state authorities. the same public body (eg, NHIF) was found to be acting as an under- The CPC may also obtain evidence through on-site inspections (dawn taking, while in others it was not. raids). In certain complex cases, the CPC may appoint external experts Apart from the above, the LPC does not contain a special defence to cover technical, financial or sector-specific questions. The cartel for state actions, government-approved activity or regulated conduct. investigation is not limited in time. In practice, it may take between six Infringing undertakings would be equally exposed to competition rules, months and two years. regardless that they may have acted under law, public order or regu- Once the working group has collected sufficient evidence, a detailed lation. Yet, to aid state authorities in not issuing competition-abusive report is presented by the supervising member to the CPC in a closed legislation, the CPC has adopted Guidelines for compliance of legislative session. Based on the report, the CPC shall issue: acts with the competition law and a checklist for (potentially) abusive • a decision of lack of violation and shall close the case; provisions. • a ruling to return the case to the working group for additional The CPC may also assess a particular legislation for its effect on investigation with mandatory instructions; and competition under its advocacy procedures. CPC decisions on advocacy, • a ruling for serving a statement of objection to the defendant, where however, are not mandatory. CPC arguments for the committed infringement are presented.

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Each party to a case (ie, the defendant, claimant and affected third • enter and search premises (during unannounced inspections, the parties) then has at least 30 days to make written submissions on the police usually assist CPC case handlers with entering properties); CPC’s findings contained in the statement of objections and to present • take possession of relevant documents (by making copies or evidence. Parties are not given access to the full report of the working seizing the original documents), or take the necessary steps to group; however, at this stage, they will have access to a version of the preserve or prevent interference with such documents; working group’s file that has had confidential information removed. • require any person to provide an explanation of documents, or Since the cartels, as defined by the LPC, are considered material provide information, to the best of his or her knowledge and belief, infringements of the competition, the CPC is not allowed to approve where documents may be found; commitments by the alleged infringers in case of other types of prohib- • require any relevant information that is stored electronically and ited restrictive agreements. is accessible from the premises to be produced in a form that is After the 30-day period, an open session of the CPC is scheduled, legible and in which it can be taken away; and which cannot be earlier than 14 days. At the open session, the parties • access servers and cloud-based data centres accessible by present their positions and questions to clarify certain facts and circum- computers and other means of the undertaking, located on the stances that could be asked by the CPC members. The CPC may accept premises and take forensic images of any digitally stored informa- statements from other persons as well. tion (the CPC may demand access accounts and passwords to be After the open session hearing, during a closed session, the CPC disclosed by the undertaking’s employees). shall, after consideration of all statements, arguments and objec- tions, issue: Bulgarian law recognises attorney-client privilege in communications • a final decision establishing that: between undertakings with their external legal advisers. However, • a violation under LPC and imposing sanctions occurred; or advice from in-house legal counsel is not privileged so can be seized • no infringement was committed by the defendant; or and used by the case handlers as evidence. • a ruling that there are no grounds for taking action against the Unlike the EC, the CPC may not only seize evidence relating to defendant for infringing article 101 TFEU; the investigation in question but any other document or evidence that • a ruling that a new statement of objections is to be served on the raises a well-founded suspicion of other antitrust infringements under defendant; or Bulgarian or EU laws. • a ruling for returning the case to the working group for additional The CPC has the power to fine an undertaking up to 1 per cent of investigation. their annual turnover (as per its previous audited financial statement) and to fine individuals who do not assist or who impede a dawn raid. A version of the CPC decision that does not contain confidential informa- In 2020, the CPC sanctioned the Bulgarian Petrol and Gas Association tion is published on the CPC website. (decision of the CPC No. 676 of 6 August 2020) for failing to disclose an internal email address regularly used for communication within the Investigative powers of the authorities Association to it. 12 What investigative powers do the authorities have? Is court approval required to invoke these powers? INTERNATIONAL COOPERATION

The CPC has a wide range of investigative powers. During an investi- Inter-agency cooperation gation, CPC case handlers are authorised to request information and 13 Is there cooperation with authorities in other jurisdictions? evidence from the defendant, any third party, state authority, EU compe- If so, what is the legal basis for, and extent of, such tent authorities and member states that might have information relevant cooperation? to the investigation. Requested parties should cooperate and provide all data in their possession, even if the information contains trade secrets. The CPC participates in the European Competition Network (ECN) The CPC is obliged to protect any confidential information and to not and the International Competition Network and is actively involved in disclose it to other parties. The CPC may fine any person who, without competition investigations undertaken by the Organisation for Economic reasonable grounds, fails to comply with a formal information request. Co-operation and Development. The case handlers are also entitled to take oral or written state- The CPC is also involved in bilateral cooperation with competi- ments from representatives of undertakings and other persons, as well tion authorities outside the ECN, such as the Federal Antimonopoly as to conduct inspections of premises of undertakings. In addition, the Services of Russia, and the competition agencies of Albania, Azerbaijan, CPC may conduct unannounced onsite inspections (dawn raids) in the Bosnia and Herzegovina, Croatia, Cyprus, Georgia, Kosovo, Macedonia, premises of an undertaking suspected of cartel activity, including when Moldova, Montenegro, Serbia, Turkey and Ukraine. assisting the CPC with collecting the evidence needed for an EC investi- Together with the United Nations Conference on Trade and gation. Most cartel investigations in Bulgaria over recent years started Development, the CPC is a co-founder of the Sofia Competition Forum with unannounced inspections at the headquarters of the undertak- – an informal platform for technical assistance, exchange of experience ings where significant amounts of documents were seized and further and consultation in the field of competition policy, and enforcement reviewed by the case handlers. between competition authorities in the Balkan region. In order to carry out a dawn raid at the premises of an undertaking The CPC also cooperates with the EC and other EU member states’ under investigation, the CPC must obtain explicit authorisation from the national competition authorities (NCAs), by receiving and rendering Administrative Court in Sofia (city), based on which it may enter all of the assistance and exchanging information under the procedure set forth undertaking’s business premises irrespective of their location and means in Regulation No. 1/2003 and the Empowering National Competition (eg, offices and motor vehicles). However, under Bulgarian law, private Authorities Directive (EU) No. 2019/1 (ECN+ Directive) (which is yet to be homes and equipment (eg, personal laptops) cannot be inspected by the implemented in Bulgaria). Based on this, the CPC may forward informa- CPC, even though they might contain data and documents belonging to tion obtained during the course of a cartel investigation to the European the undertaking under investigation. The CPC case handlers and other Commission (EC) and to EU member states’ competition authorities. specified persons (such as IT experts) are authorised to: This is an exception to the general rule that member states’ confidential www.lexology.com/gtdt 53 © Law Business Research 2020 Bulgaria Wolf Theiss

information collected by the CPC during the investigations shall not Circumstantial evidence be disclosed and should only be used for purposes under the LPC. As 17 Can an infringement be established by using circumstantial per Regulation No. 1/2003, the recipient of this confidential data must evidence without direct evidence of the actual agreement? guarantee the same level of confidentiality as ensured by the NCA that forwarded it. The CPC takes the position that circumstantial evidence often indi- The CPC is also a party to inter-institution cooperation agreements cates that there is an anticompetitive agreement or intention to commit – including with the Ministry of Interior, the Bulgarian National Audit competition infringement, but such evidence is not sufficient by itself Office, the National Revenue Agency, the Public Procurement Agency, the to prove an infringement and should be considered alongside other Communications Regulation Commission, Energy and Water Regulatory evidence supporting the same conclusion (decision of the CPC No. 1628 Commission (KEVR) – based on how the competition authority uses of 22 December 2010). information and recourses for enforcement activity. For example, the Previously to this, the SAC, acting as the court of second instance, police assist the CPC during dawn raids, the Public Procurement Agency has accepted circumstantial evidence as sufficient proof where all notifies the CPC of potential examples of bid rigging in public procure- such evidence, in its entirety, indicate the existence of an agreement ment processes, and the National Revenue Agency provides market and or a concerted practice and where no other meaningful explanation for financial data needed during the course of a cartel investigation. the undertakings’ conduct exists (judgment of the SAC No. 11522 of 16 September 2013). Interplay between jurisdictions In a recent bid rigging case (decision of the CPC No. 761 of 27 June 14 Which jurisdictions have significant interplay with your 2019), the CPC undertook the same approach as SAC and took into jurisdiction in cross-border cases? If so, how does this affect consideration the following circumstantial evidence for the existence of the investigation, prosecution and penalising of cartel activity coordinated behaviour of the participants in public procurement bid: the in cross-border cases in your jurisdiction? participant’s offers were for the same amounts, were presented in the same way (eg, font, layout, etc) and contained the same technical errors. The CPC’s most important partner in cross-border cases is the EC. In accordance with article 11 of Regulation No. 1/2003, the CPC informs the Appeal process EC of any formal investigative measures under article 101 TFEU. Before 18 What is the appeal process? a decision is adopted, including on a cartel case, the CPC is required to provide the EC with a summary of the case and a draft decision. CPC decisions were previously subject to appeal before the SAC, but as The CPC also informs member states’ NCAs of any case that has of 1 January 2019, the competency to hear such appeals was moved to cross-border effects and reviews information about the cases initiated by the Administrative Court for Sofia District. member states’ NCAs to check if they affect competition in the Bulgarian Parties involved in a cartel investigation are entitled to submit market, so that cases may be reallocated within ECN members. So far, appeals against CPC decisions within 14 days of receiving notification no cases have been reallocated from or to other NCAs. of the CPC’s decision. Any third party that can prove it has a direct legal International inter-agency cooperation outside of the ECN does not interest is also entitled to appeal a CPC decision within 14 days of its formally affect the CPC’s investigations of cartels, including in cross- publication on the CPC website. border cases. The appeal should be submitted through the CPC. The entire CPC file is provided to the Administrative Court for Sofia District. Any CARTEL PROCEEDINGS evidence and information marked as confidential is kept in separate files to which only the court’s judges have access. The appellant, the Decisions CPC and all interested parties submit written statements regarding the 15 How is a cartel proceeding adjudicated or determined? appeal and are summoned to take part in oral hearings before the court. The court may appoint external experts on specific technical or financial The Commission for Protection of Competition (CPC) investigates and issues. The Administrative Court for Sofia District has significant power adjudicates cartel matters in Bulgaria. The CPC opens the proceedings of judicial review over the decisions of the CPC, and it may review both for investigation of a cartel on legal grounds provided for in the LPC, and legal and factual questions, including the correctness and completeness on its own initiative. Pursuant to the Law on Protection of Competition of the facts established by the CPC, modification of the imposed fines, (LPC), a cartel investigation is carried out by case handlers – experts and review of the CPC’s interpretation of the economic facts. Usually, (lawyers and economists) nominated by the chairperson of the CPC – the appeal procedure can take between three months and one year. who are supervised by a member of the CPC. Members of the CPC make The judgment of the Administrative Court is subject to appeal decisions on the case, based on the results of the investigation. before the SAC sitting on a panel of three judges. The SAC’s judgment may be appealed by the defendant, and by the Burden of proof CPC if its decision was overruled by the first instance court. 16 Which party has the burden of proof? What is the level of The SAC’s three-panel judgment is final and binding. The appeal proof required? usually takes about six months to one year (depending on the difficulty of the case and the workload of the court, and the measures in place to The burden of proof lies with the competition authority. Despite prevent the spread of the coronavirus). the lack of clear legislator guidelines, the case law of the Supreme Administrative Court (SAC) indicates that the standard of proof expected SANCTIONS by the CPC is that an alleged infringement must be proved ‘beyond a reasonable doubt’. Criminal sanctions If an undertaking refers to an individual exemption under article 19 What, if any, criminal sanctions are there for cartel activity? 17 of the LPC or article 101(3) of the Treaty on the Functioning of the European Union (TFEU), the undertaking must prove that the require- No criminal sanctions for cartel activity are provided for under ments laid down in those provisions are fulfilled. Bulgarian law.

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Civil and administrative sanctions all other necessary measures to restore the level of competition and 20 What civil or administrative sanctions are there for cartel status to as it was before the infringement activity? Pursuant to article 102 of the LPC, the CPC can fine individuals who assist in a cartel between 500 leva and 50,000 leva. Individuals who fail Civil sanctions to cooperate and assist the CPC during an investigation may be fined According to article 15, paragraph 2 of the Law on Protection of Competition between 500 leva and 25,000 leva. (LPC), agreements between undertakings having as their object or result restriction of competition are null and void. The consequences of this are Guidelines for sanction levels governed by civil law and pursuant to article 26 of the Law on Contracts 21 Do fining or sentencing principles or guidelines exist? If yes, and Obligations, these agreements do not have any legal effect. are they binding on the adjudicator? If no, how are penalty Furthermore, cartel activity may give rise to private damages claims levels normally established? What are the main aggravating by the affected parties. The legal requirements, eligible parties and the and mitigating factors that are considered? rules for quantification of the damages have been set forth in the LPC in line with the Private Damages Directive. In 2009, the CPC adopted a methodology for calculating fines under the LPC. Since then, the methodology has been updated several times, most Administrative sanctions recently in 2015. Under the LPC, the Commission for Protection of Competition (CPC) can With regard to sanctions for cartel activity, fines are set by using a impose administrative (pecuniary) sanctions on an undertaking to which two-part approach: the basic amount of the sanction is set, which is then the infringement of a cartel prohibition could be attributed, in an amount adjusted based on aggravating or mitigating circumstances. not exceeding 10 per cent of the total turnover of that undertaking in the The basic amount is based on the value of sales of products affected preceding financial year (based on last audited financial statement). The by the cartel, depending on the gravity and duration of the infringement. exact amount of sanctions is determined by the gravity and duration of According to the methodology, as cartels are considered serious infringe- the infringement, and the circumstances mitigating and aggravating the ments, the basic amount is up to 10 per cent of the value of sales of undertaking’s liability which are outlined in the CPC methodology for the the affected products. The basic amount may be increased or reduced by calculation of fines. 10 per cent for each aggravating or mitigating circumstance, but cannot CPC decisions on cartel cases show that it is inclined to impose sanc- exceed 10 per cent of the undertaking’s total turnover for the preceding tions of almost the maximum amount provided in the law. For example, in financial year. 2012 the CPC imposed fines totalling 2,914,560 leva – the highest amount The 10 per cent fine is separate from the 1 per cent fine for obstructing it has issued for horizontal anticompetitive cooperation. The fines were a CPC investigation and the daily 5 per cent fine for not following a CPC imposed on three Bulgarian companies for bid rigging in a public procure- order to terminate a cartel or to follow interim measures set by the CPC. ment process for supplying air tickets. One of the participants was Therefore, these fines are cumulative and do not exclude each other. sanctioned with the highest single fine ever imposed by the CPC on a one The CPC takes the following aggravating factors into account when undertaking for horizontal cooperation – 2,818,800 leva. However, in 2016, setting a fine: the SAC annulled this decision and the fine issued to the undertaking. • the undertaking committed the same or a similar violation, as estab- In addition to the 10 per cent sanction, the CPC may impose a pecu- lished by the CPC, another EU national competition authorities niary sanction of up 1 per cent of an undertaking’s total turnover in the (NCA), or the European Commission (EC); preceding financial year for: • the undertaking refused to cooperate with or hindered the CPC • failing to assist the CPC during an investigation; during its investigation, or opposed the investigation; • damaging the integrity of or destroying seals placed during dawn • the undertaking played the role of ring leader (ie, it initiated, led or raids; and incited the breach); • providing incomplete, inaccurate, untrue or misleading information. • the undertaking exercised coercion (ie, undue influence) upon another undertaking to participate in the infringement; Most frequently, the CPC imposes sanctions of between 0.01 and 1 per • the undertaking paid or offered to pay ‘compensation’ or ‘damages’ cent on undertakings for non-cooperation (eg, not providing requested to other enterprises to include them in the violation; information) during the investigations. The appeal court usually upholds • the cartel affected competition in related or neighbouring such sanctions. In a recent case (decision of the CPC No. 619 of 5 June markets; and 2018), the CPC imposed a sanction of 1 per cent of the global turnover • other factors, depending on the facts of the case. of a company for delaying a CPC inspection by five hours, restricting the CPC’s access to relevant digital files, providing a fake email address of a The mitigating factors the CPC may consider include the undertaking or manager, and attempting to manipulate folders on the aforementioned association: manager’s computer during the inspection. The company appealed the • having taken a passive role in the cartel (eg, playing a limited role in amount of the fine, arguing that its behaviour did not substantiate the the violation or adopting the strategy of ‘follow the leader’); maximum of 1 per cent. In two instances the appeal court and the SAC • effectively cooperating with the CPC outside the scope of the leniency (final cassation instance) confirmed that any delay and impediment of a programme and the obligation for cooperating pursuant to the LPC; dawn raid process is a severe breach and may justify the maximum sanc- • having taken appropriate measures for restricting the infringe- tion being applied. ment’s detrimental consequences; and The CPC may also sanction an undertaking by up to 5 per cent of its • other factors, depending on the facts of the case. average daily turnover of the preceding financial year for each day it fails to comply with a CPC order to terminate a cartel or a CPC ruling imposing In a recent case (decision of the CPC No. 761 of 27 June 2019), the interim measures. defendants tried to claim that ending the infringement before the CPC In addition to monetary sanctions, the CPC is authorised to take all intervention was a mitigating circumstance. However, this argument necessary measures to terminate a restrictive agreement, remove the was rejected by the CPC, which considered that reason they ended the consequences of every action that has been taken unlawfully, and to take infringement was that it had fulfilled its purpose (ie, to manipulate the www.lexology.com/gtdt 55 © Law Business Research 2020 Bulgaria Wolf Theiss

tender procedure). In this case, the CPC reminded them that under the PRIVATE RIGHTS OF ACTION CPC’s methodology for the calculation of fines, early termination of an infringement is not viewed as a mitigating circumstance in cartel cases Private damage claims (unless it is done in the context of the leniency procedure). 26 Are private damage claims available for direct and indirect When determining the amount of the sanction, other factors, such purchasers? Do purchasers that acquired the affected as the duration of the cartel and its effectiveness, are also taken into product from non-cartel members also have the ability to consideration by the CPC. bring claims based on alleged parallel increases in the prices they paid (‘umbrella purchaser claims’)? What level of Compliance programmes damages and cost awards can be recovered? 22 Are sanctions reduced if the organisation had a compliance programme in place at the time of the infringement? The Private Damages Amendment was introduced to facilitate efforts by victims of cartels and other antitrust infringements to claim compensa- The CPC promotes the implementation of compliance programmes within tion. Under the Law on Protection of Competition (LPC), any direct or organisations as a mean of increasing competition law awareness and indirect purchaser (a natural person or a legal entity) may claim full internal compliance. The CPC has issued special guidelines for corporate compensation for damages caused by an infringement of respective compliance programmes containing various recommendations on how to provisions of European or Bulgarian competition law before compe- structure such programmes. tent civil courts. The liability for cartel infringements is limited to direct However, in the guidelines and the methodology for the calcula- damages, where the compensation will cover actual losses, loss of tion of fines, the CPC explicitly stated that the existence of a compliance profit and payments of interest from the time the harm occurred until programme at the time of the infringement is not considered a mitigating payment of the compensation. circumstance and cannot lead a priori to a reduction of a sanction. The Private Damages Amendment increases the role of the judge Depending on the circumstances of a case, under the methodology, in determining the amount of damages. In addition, for assessment of particular measures undertaken by an undertaking that were facilitated the damages caused, judges are authorised to seek the assistance of by the existence of a compliance programme (eg, measures for early the Commission for Protection of Competition for the amount of the identification of an infringement) might be considered mitigating circum- damages. The involvement of administrative bodies in the process of stances. If so, the CPC is generally allowed to reduce a fine by up to 10 determining damages and obtaining assessments by independent per cent for each such mitigating circumstance. experts is a novelty under Bulgarian law. One of the key new provisions implemented with the Private Director disqualification Damages Amendment (and in line with the Private Damages Directive) 23 Are individuals involved in cartel activity subject to orders is the rebuttable presumption that cartels always cause harm, which in prohibiting them from serving as corporate directors or turn reverses the burden of proof in favour of the claimant. Since such officers? presumptions are unusual under Bulgarian law, the courts will have to decide the applicable standard of proof, which defendants will have to There are no specific provisions under Bulgarian law prohibiting indi- meet to rebut that presumption. viduals involved in a cartel activity to be appointed as corporate directors There are no specific provisions under Bulgarian law on the or officers. ‘umbrella purchaser claims’. However, based on the general princi- ples of the LPC on private damages claims as well as on the European Debarment Court of Justice practice (Case C–557/12 Kone AG and others v ÖBB– 24 Is debarment from government procurement procedures Infrastruktur AG (Kone)), such claims would be possible. However, we automatic, available as a discretionary sanction, or not are not aware of any umbrella purchaser claims brought under the LPC available in response to cartel infringements? since the adoption of the Private Damages Amendment in 2018.

Under the Bulgarian Public Procurement Act, which came into force Class actions on 15 April 2016, infringement of cartel prohibitions (whether under 27 Are class actions possible? If so, what is the process for such Bulgarian, other national competition law or article 101 of the Treaty on cases? If not, what is the scope for representative or group the Functioning of the European Union) may lead to an undertaking being actions and what is the process for such cases? excluded from public procurement procedures for a period of three years following the decision establishing an infringement. However, such a The Bulgarian Code allows class actions for the protec- decision does not automatically lead to exclusion, as contracting authori- tion of a collective interest; however, in such proceedings damages ties must include this as a criterion in a tender. If an undertaking provides can be claimed for harm caused to the collective interest concerned, sufficient evidence that all damages arising from its unlawful behaviour but not to individuals. The class action mechanism has rarely been have been compensated, the contracting authority may allow the under- used in practice. To the best of our knowledge, no class actions taking to participate in the tender process. concerning competition law infringements have been brought before the Bulgarian courts. Parallel proceedings 25 Where possible sanctions for cartel activity include criminal and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the choice of which sanction to pursue made?

Pursuant to Bulgarian law, cartel activity does not qualify as a crime, therefore administrative and civil consequences apply, in addition to the agreement being invalid from a provision in the law.

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COOPERATING PARTIES • it complies with the conditions for granting full leniency as set out in the Rules for Application of the Leniency Programme. Immunity 28 Is there an immunity programme? If so, what are the basic Going in second elements of the programme? What is the importance of being 30 How is the second cooperating party treated? Is there an ‘first in’ to cooperate? ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, how does it operate? The Law on Protection of Competition (LPC) sets out the legal basis for granting full or partial immunity to an undertaking that participated in a Fine reductions are done at the discretion of the CPC discretional and secret cartel. The legislative rules are further developed in a Leniency depend on the order of evidence submitted to the CPC and its signifi- Programme and Rules for Application of the Leniency Programme, cance to the cartel investigation. adopted by the Commission for Protection of Competition (CPC) in 2011. The second applicant, provided it presents evidence of material There are two options for granting full leniency to a participant in a significance for proving the cartel infringement at its own initiative and secret cartel. The undertaking may benefit from full immunity if, before voluntarily, can benefit from a reduction of between 30 per cent and 50 any other participant, it submits evidence that is a sufficient ground for per cent of the penalty for the cartel infringement. The fine for a third the CPC to ask for a court’s authorisation to carry out an on-site inspec- cooperating party may be reduced by 20 per cent and 30 per cent. For tion (a dawn raid), provided that at the time of the immunity application subsequent applicants, it is reduced by 10 per cent and 20 per cent. Any the CPC did not have enough evidence to proceed with such a request. evidence to support a partial leniency application must be submitted If the conditions for the first option are not present, the cartel before the completion of the investigation (ie, the statement of objec- participant may still apply for full leniency, provided that it, ahead of tions being issued). any other participant in the cartel, presents sufficient evidence to allow The CPC leniency programme provides incentives for applicants the CPC to prove the cartel infringement. In this case, the CPC should to come forward with information about other cartels they are involved not have granted conditional immunity to another undertaking at the in. If during an investigation, a cartel participant provides information time of the application and should not have had at its disposal, sufficient regarding its involvement in another cartel, the CPC may reduce the fine evidence to decide there was a cartel infringement. for participating in the first cartel by an additional 10 per cent (‘leniency In both cases, the applicant must not have coerced any other under- plus’). If an undertaking provides information disclosing the existence of taking to participate in the cartel and must have ceased its participation more cartels, the CPC may reduce the fine for participating in the first in the cartel at the time of the application, unless instructed otherwise cartel by 10 per cent for each cartel revealed, up to a maximum of 30 by the CPC. per cent. Reductions in fines from providing information under ‘leniency The requirement of being ‘first in’ to cooperate relates to the plus’ and full or partial leniency applications are cumulative. possibility of the undertaking receiving full immunity. Only the first coop- erating undertaking can be granted full immunity. Approaching the authorities The full immunity applicant is also granted additional protection 31 Are there deadlines for initiating or completing an application in subsequent private damages cases. The LPC retained the narrower for immunity or partial leniency? Are markers available and scope of possible claimants from the Private Damages Directive, there- what are the time limits and conditions applicable to them? fore only the direct and indirect customers of the first immunity applicant itself make sue it for damages, limiting the principle of solidarity with Undertakings participating in a cartel are advised to approach the CPC other cartel participants. and apply for leniency as early as possible since only the first cooper- In addition, as envisaged in the Private Damages Directive and imple- ating party is eligible for full leniency. Applications submitted when the mented in the LPC, claimants in private damages claims against cartels proceeding has already started should be well considered and only filed are not given access to the leniency applications of full or partial immu- when the undertaking possesses evidence of material significance. nity applicants. The CPC only provides the court with access to immunity If a cartel may affect trade between EU member states, the under- applications and for the purpose of the court verifying whether the docu- taking should also consider making simultaneous leniency applications ments constitute immunity applications and so whether the whole of the to the EC and the relevant competition authorities of the member states. document is protected. This restricted access is an additional protection A leniency application to the EC will not be considered as an application to encourage immunity applications, which may otherwise lead to under- to the CPC or any national competition authority (NCAs) and vice versa. takings exposing themselves to private damages claims. The leniency programme under the LPC sets out rules for markers applicable to both full and partial leniency applicants. At a request of Subsequent cooperating parties an undertaking, the CPC may, at its discretion, grant a grace period to 29 Is there a formal programme providing partial leniency for an undertaking that has filed an application for leniency but lacks the parties that cooperate after an immunity application has been data and evidence to present with its application. The grace period can made? If so, what are the basic elements of the programme? be extended at the CPCs discretion. In a marker application, the under- If not, to what extent can subsequent cooperating parties taking should provide, at a minimum: expect to receive favourable treatment? • information concerning the participants; • affected products or services; The CPC Leniency Programme allows the CPC to grant partial leniency • affected territories; (ie, a fine reduction) to a cartel member after it a cartel investigation has • the nature of the infringement (eg, client and market allocation); begun, despite an immunity application being made by another cartel • the duration of the agreement; and member. An undertaking is eligible for such reduction if: • a description of the functioning of the cartel (including telephone • it provides evidence that is of material importance for proving calls and emails). the infringement, voluntarily and at its own initiative, prior to the completion of the investigation (ie, a statement of objections being issued); and www.lexology.com/gtdt 57 © Law Business Research 2020 Bulgaria Wolf Theiss

Cooperation Settlements 32 What is the nature, level and timing of cooperation that 34 Does the investigating or prosecuting authority have the is required or expected from an immunity applicant? Is ability to enter into a plea bargain, settlement, deferred there any difference in the requirements or expectations prosecution agreement (or non-prosecution agreement) or for subsequent cooperating parties that are seeking partial other binding resolution with a party to resolve liability and leniency? penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? According to the leniency programme and Rules on the Application of the Leniency Programme, lieniecy applicants should cooperate in good In addition to leniency, which is settled at an earlier stage of a cartel faith, fully and continuously with the CPC from the submission of the investigation and when the CPC is yet to determine the existence of application to the adoption of the decision by the CPC. a cartel, another option for relief or reduction of a penalty is for the A leniency applicant must provide at their own initiative, or at cartel participant to offer commitments to the CPC once the cartel is the CPC’s request, all information and evidence at their disposal. In discovered. The LPC does not allow the commitments procedure to be particular, the applicant should provide the authority with all non- applied to harsh infringements of competition law (which cartels are legally privileged information, available documents and evidence usually considered as). But, in practice, it has been applied to several regarding the existence and activity of the reported cartel, and, where cartel cases – most recently, to a cartel case in the retail fuel market, as appropriate, make its current employees and managers, members of its summarised below. management board and, as far as is possible, its former employees and After being served with the CPC’s statement of objections, the managers available for hearings or witness statements. LPC gives the option for the infringing party, within a term of not less The applicant should not destroy, conceal or fabricate any informa- than 30 days, to offer the CPC commitments that it will immediately tion. It must not disclose, in any way, the fact that it intends to participate cease the infringing (cartel) activity and execute adequate changes in in a leniency programme or the content of its application, except to other the behaviour which have led to it. Both behavioural and structural authorities. commitments can be offered; in practice, the CPC has shown prefer- The applicant should comply with instructions of the CPC regarding ence to structural ones (where possible under the particularities of ceasing or continuing its participation in the cartel. Failure to comply the case). with these requirements could lead to the loss of all protection under The CPC has the discretion to assess the adequacy of the commit- the leniency programme. ments and either accept or reject them. If accepted, the CPC issues a There are no specific requirements under Bulgarian law regarding decision approving them and it may also impose a term during which the applicants for partial leniency, therefore they are subject to the same cartel participant may be monitored and sanctioned for not complying requirements as those applying for full lieniency. with the agreed commitments. The benefits to a cartel participant of making commitments are that Confidentiality the CPC will end the cartel investigation without finding an infringe- 33 What confidentiality protection is afforded to the immunity ment, which makes any private damages claim more difficult to prove, applicant? Is the same level of confidentiality protection and the CPC may reduce sanctions or not impose any at all. applicable to subsequent cooperating parties? What There are several cases where the CPC has refrained from information will become public during the proceedings and imposing any sanctions. However, if there are any subsequent changes when? in the circumstances of a cartel, the cartel participant does not fulfil their agreed commitments, or if any information the CPC’s decision was The first leniency application was made in mid-2019, therefore many based on is found to be incorrect or misleading, the CPC may re-open aspects of the implementation of the Leniency Programme have not the case and sanction infringing entities. been developed in detail. The CPC does not reveal the level of cooperation provided by or Corporate defendant and employees the identity of cooperating undertakings. The application and evidence 35 When immunity or partial leniency is granted to a corporate provided can only be used by the CPC to evaluate the leniency applica- defendant, how will its current and former employees be tion and apply for judicial authorisation for a dawn raid. treated? An applicant should keep its intention to participate in the leni- ency programme confidential, as well as the content of its application it Under Bulgarian law, only undertakings are eligible for full or partial submits to the CPC confidential. The leniency programme and the rules leniency under the leniency programme – individuals are not eligible for applying to it require this confidentiality to be kept. to apply for immunity or reduction of fines. Irrespective of whether an Access to a version of the CPC file containing non-confidential undertaking has been granted full or partial leniency, the individuals information is given to the relevant parties after the CPC serves a state- who assisted its cartel activities remain subject to penalties (ie, fines). ment of objections to the alleged infringing parties or after it issues a decision that there was no infringement. Therefore, any documents Dealing with the enforcement agency marked as confidential are not accessible to the other parties. 36 What are the practical steps for an immunity applicant Furthermore, the leniency application is not disclosed to plaintiffs or subsequent cooperating party in dealing with the in private damages claims. enforcement agency?

Undertakings wishing to take advantage of the leniency programme should contact the CPC and apply for leniency. The application has to be signed by a person who represents the applicant and should be submitted in the format adopted by the CPC. The application should contain information on the cartel’s participants, and detailed informa- tion about the cartel’s activity, including:

58 Cartel Regulation 2021 © Law Business Research 2020 Wolf Theiss Bulgaria

• affected products or services; a corporation and its employee if their interests do not conflict. However, • affected territories; if a conflict of interest arises, counsel should withdraw as counsel for • the nature of the infringement (eg, price fixing, client and market one of the parties. allocation); • the duration of the cartel; and Multiple corporate defendants • a description of the way it functions (including telephone calls 39 May counsel represent multiple corporate defendants? Does and emails). it depend on whether they are affiliated?

The application should be supplemented with relevant evidence. As long as there are no conflicts of interest, attorneys-at-law (members Leniency applications can be submitted orally, through a CPC contact. of the Bar) can represent multiple defendants. Leniency applications submitted to other competition authorities or the EC are not recognised by the CPC and will not give the protec- Payment of penalties and legal costs tion admitted to leniency applications submitted to the CPC. If the EC 40 May a corporation pay the legal penalties imposed on its is the best-placed authority to investigate particular cartel activity, an employees and their legal costs? undertaking applying to the EC for immunity may submit a leniency application to the CPC in short form. The LPC does not regulate this issue. Based on the general rules of the Prior to submitting a leniency application, it is possible for an Bulgarian Obligations and Contracts Act, the corporation could pay fines undertaking to anonymously obtain informal guidance from the CPC imposed on its employees and legal costs. regarding an application, the content of the leniency programme and information about its eligibility. This is usually done through the under- Taxes taking’s lawyers. 41 Are fines or other penalties tax-deductible? Are private The applicant may also use the availability of markers to request damages payments tax-deductible? an extension (a grace period) to submit evidence relevant for estab- lishing an infringement. Pursuant to Bulgarian law, fines are not tax-deductible. According to the non-binding opinions of the Bulgarian tax authorities, private damages DEFENDING A CASE awards are deductible from the corporate tax base.

Disclosure International double jeopardy 37 What information or evidence is disclosed to a defendant by 42 Do the sanctions imposed on corporations or individuals take the enforcement authorities? into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in During the investigation, the Commission for Protection of Competition other jurisdictions taken into account? (CPC) only provides defendants with general information about the legal grounds for the investigation and the investigated undertakings. If an The CPC does not take penalties imposed in other jurisdictions investigation was opened due to the claim by another undertaking, the into account. defendant will only be made aware of the claim, the claimant and identi- To date, there is no precedent in Bulgaria for private damages ties of other investigated undertakings. cases resulting from cartels. No specific details about the alleged infringement or documents that have been provided are given to the defendant until the CPC Getting the fine down serves the statement of objections or issues a decision that there 43 What is the optimal way in which to get the fine down? was no competition infringement. In both cases, the defendant is not be provided with access to confidential information, the CPC’s internal According to the CPC, the existence of a compliance programme is not documents (including correspondence with the EC or with EU national considered, by itself, a mitigating factor and does not affect the level of competition authorities (NCAs)). If the CPC considers certain informa- an imposed fine. tion is not confidential as per its criteria, it issues a ruling stating so and Under Bulgarian law, the optimal way to get the fine down for makes the information accessible by parties to the CPC investigation. cartel activity is by submitting a leniency application and terminating Regarding the statement of objections, the defendants are only an infringement. In this regard, the timing of cooperation is particularly given access to the CPC’s file (except for documents identified as important, as only the first applicant for leniency may obtain full immu- confidential) after the statement has been served. Defendants are not nity from administrative sanctions. Also, an immunity recipient enjoys provided with access to confidential documents, even during appeal further protection in private damages claims against it (eg, access to the proceedings before the SAC. In its case law, the SAC views that parties’ leniency application by third parties is restricted, the scope of liability interests are not affected by limited access to documents collected by of an immunity recipient is limited to the damages caused to its own the CPC, as the SAC has unlimited access to the entire file. behaviour, and there is no solidarity with the other cartel participants). Outside of the leniency programme, participants in a cartel may Representing employees obtain a 10 per cent reduction in a fine from mitigating circumstances. 38 May counsel represent employees under investigation in Under the CPC methodology for the calculation of fines, terminating addition to the corporation that employs them? When should an infringement immediately after the start of an investigation is not a present or past employee be advised to obtain independent considered a mitigating circumstance in cases of cartel activity. legal advice or representation? The mitigating circumstances in cartel cases that may affect the level of fine are: The LPC does not regulate this issue. Under the Bulgarian Bar Act, • passive behaviour by the undertaking in the cartel activity; members of the Bar may not represent the interests of two or more • a limited role in the infringement or adopting the strategy of ‘follow parties if their interests conflict. Therefore, counsel may represent both the leader’; www.lexology.com/gtdt 59 © Law Business Research 2020 Bulgaria Wolf Theiss

• short-term participation in the cartel and terminating participation upon the company’s management becoming aware of it (for which compliance programmes may help); • fully cooperating with a competition authority during an investigation; • undertaking measures to remedy unfavourable consequences of the infringement; and • other circumstances, depending on the specific case. Anna Rizova [email protected] Since cartels are considered a material infringement of the law, the CPC cannot adopt commitment decisions in cartel cases, even if certain Hristina Dzhevlekova commitments are proposed by parties. [email protected]

UPDATE AND TRENDS Office Park Expo 2000, Phase IV 55 Nikola Vaptsarov Blvd Recent cases 1407 Sofia 44 What were the key cases, judgments and other developments Bulgaria of the past year? Tel: +359 2 8613 700 www.wolftheiss.com In 2020, the focus of the Commission for Protection of Competition (CPC) was not on the traditional sectors prone to cartels where it has detected coordinated behaviour (eg, retail chains, fast-moving consumer goods and its production sector, industry trade associations, etc). The most Coronavirus substantial current cartel investigation concerns the wholesale and 46 What emergency legislation, relief programmes, enforcement retail fuel/petrol sector in Bulgaria. However, as the CPC carried out policies and other initiatives related to competitor conduct a sector analysis after a one-year-long review of this sector and the have been implemented by the government or enforcement participants in its whole value chain and found no disturbing practices authorities to address the pandemic? What best practices are by the market participants, it is unlikely the investigation will discover advisable for clients? a cartel. Rather, in the sector analysis, the CPC found various distur- bances in the market’s structure and in legislation and recommended The covid-19 pandemic did not lead to many measures enhancing various legislative amendments. The current cartel investigation seems competitors’ conduct and commercial cooperation. As of the reporting to have been triggered by pressure from prosecutors and from the date, the only explicit derogation announced by the CPC applied to the public to lower the retail price of fuel. milk and diary, potatoes, and the live trees and other plants sectors, The period of 2019-2020 also showed an increased number of bid under EU Regulations 2020/593, 2020/599 and 2020/594, which all rigging cases. These cases, which only involved a minor part of the entered into force on 1 May 2020 and lasted six months. The dero- CPC’s work, are now an urgent matter for the CPC due to an increased gation, which applied to article 101 of the Treaty on the Functioning number of publicly funded projects. And since, due to covid-19, even of the European Union, but not article 15 of the Law on Protection of more state and EU-financed programmes have become available to Competition, explicitly excluded cartel arrangements in the aforemen- local market players, bid rigging cases are likely to remain one of the tioned sectors. At present, it is not clear if any local companies used the CPC’s top enforcement priorities. derogation and notified the CPC and the Ministry of Agriculture, Foods In recent CPC practice, there is a notable change of focus from and Forests of cooperation measures they had undertaken. antitrust abuses to unfair trade practices within various commer- cial sectors in Bulgaria. Since unfair trade practices, although part of Bulgarian competition law, entail more consumer-related abuses, such as misleading advertising, such proceedings also create more publicity for the CPC, showing it as a corrective in commercial markets. At this time, the CPC has conducted several dawn raids and fined two companies for non-cooperation in dawn raid inspections. The leni- ency procedure was used for the first time as a method for collecting evidence and to incentivise the initial whistleblower.

Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

There are no ongoing reviews or proposed changes to the legal frame- work applicable to cartel cases.

60 Cartel Regulation 2021 © Law Business Research 2020 Canada

William Wu, Guy Pinsonnault and Neil Campbell McMillan LLP

LEGISLATION AND INSTITUTIONS section 47, which was also amended to include agreements to withdraw a previously submitted bid, carries the same imprisonment penalty or a Relevant legislation fine in the discretion of the court. 1 What is the relevant legislation? In December 2009, the Bureau issued guidelines setting out its policy on competitor agreements, including how it will determine Canada has one statute governing all aspects of competition law: the whether to pursue enforcement action under the criminal cartel or civil federal Competition Act (the Act). This statute is applicable throughout competitor agreement provisions. In July 2020, the Bureau initiated a the country; there is no provincial or territorial competition legislation public consultation process for its proposed updates to the December in Canada. 2009 guidelines, which reflect the Bureau’s enforcement experience since 2009 and several recent related court rulings. Relevant institutions The Bureau conducted public consultations in October 2017 2 Which authority investigates cartel matters? Is there and May 2018 on proposed revisions to its immunity and leniency a separate prosecution authority? Are cartel matters programmes. New policy documents introducing the revised immunity adjudicated or determined by the enforcement agency, a and leniency programmes were jointly released by the Bureau and the separate tribunal or the courts? PPSC in September 2018. In April 2020, the Bureau issued a statement providing specific The Act is administered and enforced by the Commissioner of Competition guidelines relating to competitor collaboration during the exceptional (the commissioner) who serves as the head of the circumstances created by the covid-19 pandemic. (the Bureau) and who reports to the Minister of , Science and Industry. The commissioner is responsible for investigating alleged Substantive law breaches of the criminal provisions of the Act. The Cartels Directorate 4 What is the substantive law on cartels in the jurisdiction? in the Bureau, consisting of the senior deputy commissioner, a deputy commissioner, two assistant deputy commissioners, and approximately Section 45 of the Act forms the core of Canadian cartel law. It provides 40 officers, investigates all matters relating to cartels, conspiracies and that any person who, with a competitor (or potential competitor) in bid rigging. respect of a particular product, conspires, agrees or arranges any of the Canada’s attorney general has the ultimate discretion and following is guilty of an indictable offence: authority to initiate criminal proceedings under the Act. The discretion of • fixing, maintaining, increasing or controlling the price for the the attorney general is exercised by the director of public prosecutions supply of the product; (DPP), who heads the Public Prosecution Service of Canada (PPSC). A • allocating sales, territories, customers or markets for the produc- team of approximately 15 lawyers from the PPSC is responsible for the tion or supply of the product; or conduct of prosecutions under the Act. Prosecutions are brought before • fixing, maintaining, controlling, preventing, lessening or eliminating the provincial or federal courts. the production or supply of the product. In practical terms, cartel prosecutions are initiated only upon the commissioner’s recommendation to the DPP. Similarly, negotiated reso- As a result, price-fixing, market allocation and output restriction lutions under the Bureau’s immunity and leniency programmes are conspiracies are illegal per se in Canada. Previously, the Act prohib- initially handled by the Bureau but ultimately concluded by the PPSC, ited only conspiracies with ‘undue’ competitive effects, as determined with the Bureau’s input. under a ‘partial rule of reason’ analysis. Notably, there is no statute of limitations for the conspiracy or bid rigging offences. Thus the Changes former provision remains applicable to conduct that occurred prior to 3 Have there been any recent changes, or proposals for change, March 2010. to the regime? As with most criminal offences, a conviction under the Act requires the prosecution to prove beyond a reasonable doubt both the actus In March 2010, the former ‘partial rule of reason’ approach to criminal reus and the mens rea of the offence. The actus reus is established conspiracies in section 45 was replaced with a per se criminal offence by demonstrating that the accused was a party to a conspiracy, agree- to address hard-core cartel conduct. A civil ‘reviewable practice’ was ment or arrangement with a competitor to fix prices, allocate markets added in section 90.1 to address other anticompetitive agreements or customers, or lessen the supply of a product in the manner described between competitors. The amendments also raised the maximum above. To establish the mens rea of the offence, the prosecution must penalties to a fine of C$25 million per count charged or up to 14 years in demonstrate that the accused intended to enter into the agreement and prison for the new conspiracy offence. The bid rigging provision under had knowledge of its terms. www.lexology.com/gtdt 61 © Law Business Research 2020 Canada McMillan LLP

The Act also prohibits Canadian corporations from implementing The Superior Court of Quebec decision R v Pétroles Global Inc. is directives from a foreign corporation for the purpose of giving effect to the first ruling in Canada regarding an organisation’s criminal liability conspiracies entered into outside of Canada (section 46) and prohibits pursuant to section 22.2 of the Criminal Code. This provision incorporates bid rigging (section 47). In the past, had been amendments made to the Criminal Code in 2004 that were designed to a per se illegal criminal offence. In 2009, this offence was repealed and facilitate the determination of criminal liability against corporations. The replaced with a civil ‘reviewable practice’ under section 76 of the Act. court held that corporate criminal liability may be established based on Section 45 focuses on agreements among actual or potential the actions of employees below the level of directors or the most senior competitors in the supply of products (defined to include goods and executives if they have responsibility for the relevant decision-making. services) that involve price-fixing, customer or market allocation, or output restriction. Despite some older reform proposals to the contrary, Extraterritoriality it does not address group boycotts. Potentially, it could catch other 7 Does the regime apply to conduct that takes place outside the forms of cooperation among competitors, including joint ventures and jurisdiction (including indirect sales into the jurisdiction)? If strategic alliances. However, the Bureau has indicated in its guide- so, on what jurisdictional basis? lines on competitor collaborations that the conspiracy offence will be reserved for ‘naked restraints’ on competition. Commercial activities To take jurisdiction over activities occurring outside of Canada, a such as dual distribution, group purchasing, joint ventures and strategic Canadian court must find that it has both subject-matter (or substantive) alliances will, instead, be assessed under the reviewable practice provi- jurisdiction with respect to the alleged offence, and personal jurisdiction sion in section 90.1. However, these guidelines are not determinative over the accused person. regarding the availability of private damages actions, as they are not binding upon a court. Substantive jurisdiction The Supreme Court of Canada’s 1985 decision in R v Libman sets out the Joint ventures and strategic alliances following test for substantive jurisdiction: 5 To what extent are joint ventures and strategic alliances potentially subject to the cartel laws? This country has a legitimate interest in prosecuting persons for activities that take place abroad but have an unlawful conse- The Bureau has indicated that the criminal provision in section 45 will quence here . . . all that is necessary to make an offence subject be reserved for agreements between competitors (or potential competi- to the jurisdiction of our courts is that a significant portion of the tors) to fix prices, allocate markets or restrict output that constitute activities constituting that offence took place in Canada . . . it is ‘naked restraints’ on competition. Other forms of competitor collabora- sufficient that there be a ‘real and substantial link’ between an tions, including joint ventures and strategic alliances, may be subject offence and this country. to review by the Bureau as a ‘reviewable practice’ under section 90.1, which prohibits agreements only if they are found to be likely to lessen The issue of substantive jurisdiction over cartel conduct taking place or prevent competition substantially in a market. Fines or other mone- outside Canada with effects in Canada has not been specifically tary penalties are not available under section 90.1. However, these canvassed in a contested criminal proceeding, although such conduct guidelines are not determinative regarding the availability of private has formed the basis of numerous guilty pleas. Some uncertainty damages actions, as they are not binding upon a court. remains regarding the jurisdiction of Canadian courts over such conduct. The Commissioner of Competition (the commissioner) has demon- APPLICATION OF THE LAW AND JURISDICTIONAL REACH strated a willingness to adopt an expansive interpretation of Libman. The Bureau’s position is that a foreign cartel that affects Canadian Application of the law customers triggers substantive jurisdiction. Bureau guidelines and 6 Does the law apply to individuals, corporations and other document production orders in various cases confirm the Bureau’s entities? interest in claiming jurisdiction over indirect (as well as direct) sales into Canada. Foreign producers of fax paper, sorbates, bulk vitamins, The federal Competition Act (the Act) applies to both individuals and automotive parts and numerous other products have pleaded guilty organisations. An ‘organisation’ is defined as: to violations under the former section 45 for price-fixing and market- • a public body, body corporate, society, company, firm, partnership, allocation agreements that occurred wholly outside Canada but affected or municipality; or Canadian markets, prices and customers. • an association of persons that: • is created for a common purpose; Personal jurisdiction • has an operational structure; and The general principle governing personal jurisdiction of a Canadian • holds itself out to the public as an association of persons. criminal court is that a person who is outside Canada and not brought by any special statute within the jurisdiction of the court is prima facie Charges are often laid against both a corporation and individuals such not subject to the process of that court. If there is no special statutory as its senior managers, officers or directors. Senior Competition Bureau provision for the service of a summons outside the jurisdiction, then the (the Bureau) officials have noted in speeches that the Bureau will look court does not have jurisdiction and cannot try the accused, unless the for appropriate cases in which to prosecute individuals and recommend person is present in Canada or voluntarily submits to the jurisdiction that the Public Prosecution Service of Canada (PPSC) seek jail terms. of the court. For persons who are not resident in Canada, a summons The Bureau and PPSC have charged numerous individuals in an inquiry compelling attendance before a Canadian court cannot be served abroad into retail gasoline prices in Quebec. Similarly, in an inquiry into choco- for an offence under the Act. If no service has occurred, Canadian courts late confectionery, three senior officers were charged in parallel with will not have personal jurisdiction. charges against several companies, although the proceedings were Where the accused is a corporation, notice (in the form of a stayed against all parties. In the past 10 years, more than 100 individ- summons to appear on indictment) must be served on the corporation uals have been prosecuted. pursuant to the Criminal Code by delivering it to ‘the manager, secretary

62 Cartel Regulation 2021 © Law Business Research 2020 McMillan LLP Canada or other executive officer of the corporation or of a branch thereof’ Section 49 of the Act specifically provides that, with some within the territory of Canada. Service upon the Canadian ‘affiliate’ of exceptions, federal financial institutions that make an agreement or a foreign corporation is unlikely to be sufficient, given that an affiliate arrangement with one another with respect of the following are guilty is a separate legal person and service outside of Canada on a foreign of an indictable offence: corporation is not specifically authorised. However, a corporation that • the rate of interest on a deposit; does not have a branch in Canada may still be properly served if one • the rate of interest or the charges on a loan; of its executive officers is present in Canada to carry on the business • the amount or kind of any charge for a service provided to a customer; of the corporation. If there is a Canadian affiliate of a foreign corpo- • the amount or kind of a loan to a customer; rate conspirator, a prosecution may also be instituted against the local • the kind of service to be provided to a customer; or subsidiary under section 46 of the Act in respect of local implementation • the person or classes of persons to whom a loan or other service of the conspiracy, regardless of whether charges under section 45 are will be made or provided or from whom a loan or other service will pursued against the foreign parent. be withheld.

Extradition Section 49 also makes clear that every director, officer or employee of Persons located in the United States can be extradited to Canada the federal financial institutions who knowingly made such an agree- pursuant to the Canada–US Extradition Treaty, which permits each state ment or arrangement is also guilty of an indictable offence. to request from the other extradition of individuals who are charged The maximum penalties are a fine of C$10 million per count and with, or have been convicted of, offences within the jurisdiction of the five years in prison. requesting state. Extradition to Canada from the UK, or any other country that criminalises cartel activity and with which Canada has an Underwriting extradition treaty, is also possible. While extradition will only be granted Section 45 does not apply in respect of an agreement or arrangement for offences punishable by imprisonment for a term of more than one between persons who ordinarily engage in the business of dealing in year, the cartel and bidrigging offences discussed above qualify because securities or between such persons and the issuer of a specific security, they provide for jail terms of up to 14 years. in the case of a primary distribution, or the vendor of a specific security, The procedure for extradition requires the Canadian government to in the case of a secondary distribution, if the agreement or arrangement make a formal request for extradition under the applicable treaty. The has a reasonable relationship to the underwriting of a specific security. request documentation would include an arrest warrant. This proce- dure has been used for offences under the Act at least twice. In Thomas Amateur and Professional Sport Liquidation – a misleading advertising case – US authorities accepted a The Act as a whole, including section 45, does not apply in respect of Canadian government request for extradition and issued a warrant for agreements or arrangements between or among teams, clubs and the arrest of an officer of the accused corporation who was individu- leagues pertaining to participation in amateur sport. ally charged under the Act. In a more recent case, three Canadians who In respect of professional sport, any person who conspires, agrees operated a deceptive telemarketing scheme based in Toronto, which or arranges with another person to limit unreasonably the opportunities purported to offer credit cards to Americans for a fee but never deliv- for any other person to participate, as a player or competitor, in profes- ered the cards, were extradited to the US and were sentenced by the US sional sport or to impose unreasonable terms or conditions on those Federal Court in the Southern District of Illinois. This was the first time persons who so participate, or to limit unreasonably the opportunity for a Bureau investigation resulted in extradition. any other person to negotiate with and, if an agreement is reached, to play for the team or club of his choice in a professional league is guilty Export cartels of an indictable offence, which carries a fine in the discretion of the court 8 Is there an exemption or defence for conduct that only affects or up to 14 years in prison. customers or other parties outside the jurisdiction? Airlines Subsection 45(5) provides a defence for conduct that only affects The Canada Transportation Act was amended in 2018 to introduce a customers or other parties outside of Canada: regime through which the minister of transport may authorise airline joint ventures if the minister is satisfied that they are in the public No person shall be convicted of an offence under subsection (1) interest. Under this new regime, an authorisation by the minister of in respect of a conspiracy, agreement or arrangement that relates transport has the effect of allowing parties to coordinate their activities only to the export of products from Canada, unless the conspiracy, and exempt an airline joint venture from the application of sections 45 agreement or arrangement (a) has resulted in or is likely to (criminal conspiracy provision), 47 (criminal bid rigging provision), 90.1 result in a reduction or limitation of the real value of exports of a (civil competitor agreement provision) and 92 (mergers provision). product; (b) has restricted or is likely to restrict any person from entering into or expanding the business of exporting products Collective Bargaining from Canada; or (c) is in respect only of the supply of services that The Act as a whole, including section 45, does not apply in respect of facilitate the export of products from Canada. collective bargaining activities of employees or employers.

Industry-specific provisions Government-approved conduct 9 Are there any industry-specific infringements? Are there any 10 Is there a defence or exemption for state actions, industry-specific defences or exemptions? government-approved activity or regulated conduct?

Federal Financial Institutions Historically, there existed a ‘regulated conduct’ defence, which was Federal financial institutions include federally regulated banks and developed as a principle of statutory interpretation, whereby Canadian authorised foreign banks, federal trust and loan companies, and feder- courts read down the conspiracy provisions to avoid criminalising a regu- ally incorporated and regulated insurance companies. latory body exercising its authority under a validly enacted provincial www.lexology.com/gtdt 63 © Law Business Research 2020 Canada McMillan LLP

legislation or the regulated person proceeding in accordance with such in other jurisdictions. The Bureau sometimes issues voluntary requests provincial regulation. Canadian courts have occasionally applied the for information or ‘target letters’ to companies that it believes may ‘regulated conduct’ defence in the context of federal legislation. When the have relevant information, before resorting to the formal investigative conspiracy provisions in section 45 were amended to become a per se powers described below. offence, the applicability of the ‘regulated conduct’ defence, as it existed in common law at the time, was retained by express statutory language. Search warrants Warrants to search the premises of a business or the home of an indi- INVESTIGATIONS vidual can be obtained by means of an ex parte application under section 15 of the Act. The commissioner must establish that there are reason- Steps in an investigation able grounds to believe that a criminal offence has been committed 11 What are the typical steps in an investigation? and that relevant evidence is located on the premises to be searched. Preventing access to premises or otherwise obstructing the execution The Competition Bureau (the Bureau) routinely commences informal of a search warrant is a criminal offence and the commissioner may investigations in response to complaints by marketplace participants, enlist the support of the police if access is denied. its own analysis of public information, or the evidence of informants. The Act expressly provides for access to and the search and If such an investigation leads the Commissioner of Competition (the seizure of computer records, including applications to the court to set commissioner) to believe, on reasonable grounds, that a criminal the terms and conditions of the operation of a computer system. Bureau offence has been committed, the commissioner will launch a formal investigators have downloaded data stored outside Canada in the inquiry under section 10 of the federal Competition Act (the Act). In addi- course of searches of computer systems located in Canada, although tion, the commissioner is required to commence an inquiry in response there continues to be some controversy as to the precise limits of to a directive from the Minister of Innovation, Science and Industry or by the authority granted by a warrant authorising a search of computer an application under oath by six residents of Canada. Commencement systems in a cross-border context. of an inquiry empowers the commissioner to exercise formal powers, Documents that are subject to -client privilege cannot be such as obtaining judicial orders to compel the production of evidence, immediately seized by officers under a search warrant. The Act contains search warrants and wiretap orders. a special procedure for sealing such documents and for determining the After evidence is obtained during an inquiry, the commissioner validity of privilege claims within a limited time. The Act also contains decides whether to discontinue the inquiry or refer the case to the a provision requiring the commissioner to report to the court to retain director of public prosecutions (DPP) for prosecution. Unlike many seized documents. Because the affected company or individual can ulti- other jurisdictions, Canada has no statute of limitations for the prosecu- mately request a retention or privilege hearing, and because evidence tion of indictable offences (such as price-fixing or bid rigging). There procured through an illegal search can be excluded at trial, the courts is thus no statutory deadline within which the commissioner and DPP have ruled that search warrant orders cannot be appealed. However, must decide whether to bring charges against the members of a cartel. such an order can be set aside in special circumstances such as a mate- While some Bureau investigations have been resolved expeditiously rial non-disclosure or misrepresentation in the affidavit (known as an (initiation to resolution in under two years), others have taken several ‘information to obtain’) supporting the commissioner’s ex parte applica- years depending on the complexity of the investigation and the avail- tion, or where the inquiry giving rise to the order has ended without the ability of investigative and prosecutorial resources. laying of criminal charges. If the inquiry is discontinued, the commissioner must make a written report to the minister that summarises the information obtained Wiretaps from the inquiry and the reasons for its discontinuance. The minister The commissioner has the power to intercept private communications may accept the discontinuance or require the commissioner to conduct without consent through electronic means (ie, use a wiretap). This power further inquiry. Although a directive from the minister or a ‘six-resident is restricted to conspiracy, bid rigging and serious deceptive marketing application’ cannot compel the commissioner to take any particular investigations, and requires prior judicial authorisation. The first use of enforcement proceedings, the requirement of a written report to the wiretaps as an investigative tool led to the laying of criminal charges minister upon the discontinuance of an inquiry ensures that the commis- under the deceptive telemarketing provisions of the Act, an area that sioner will closely examine the facts in such cases. Consequently, the has been the subject of vigorous enforcement activity on the part of the target of the inquiry may be required to incur significant costs, uncer- Bureau. Subsequently, extensive wiretap evidence has been used in the tainty and inconvenience in connection with such an inquiry, even investigation and prosecution of retail gasoline price-fixing conspira- though no formal charges are ever laid. cies in Quebec and Ontario, in which the Bureau recorded ‘thousands’ of If a matter is referred to the DPP, the DPP will make an independent telephone conversations using its wiretap powers. decision whether to lay charges and pursue a prosecution. In May 2010, the Bureau and the DPP issued a memorandum of understanding clarifying Subpoenas their respective roles in this process. These roles were further clarified As an alternative (or in addition) to executing a search warrant, the in the September 2018 revisions to the immunity and leniency policies. commissioner may apply to a court pursuant to section 11 of the Act to require the production of documents and other records or compel a Investigative powers of the authorities corporation to prepare written returns of information under oath, within 12 What investigative powers do the authorities have? Is court a certain period of time. On a section 11 application, the commissioner approval required to invoke these powers? need only satisfy the court that an inquiry has been initiated and that a person is likely to have relevant documents in his or her possession or During an inquiry, the commissioner has extensive (judicially super- control. Such subpoenas may be issued against targets of an investiga- vised) powers to obtain information by means of search warrants, tion as well as other third parties who may have relevant information. orders for the production of data and records, and even wiretaps. Under subsection 11(2), a Canadian corporation that is an affiliate These statutory powers supplement information supplied voluntarily by of a foreign corporation may be ordered to produce records held by its marketplace participants, cooperating parties, or enforcement agencies foreign affiliate. The precise scope of this ‘long-arm’ authority has not

64 Cartel Regulation 2021 © Law Business Research 2020 McMillan LLP Canada been judicially determined, but it continues to be invoked in document Interplay between jurisdictions production orders sought by the Bureau. The section 11(2) power was 14 Which jurisdictions have significant interplay with your the subject of a constitutional challenge by Toshiba in the Cathode Ray jurisdiction in cross-border cases? If so, how does this affect Tubes (CRT) investigation and by Royal Bank of in the Libor the investigation, prosecution and penalising of cartel activity investigation. In both cases, the litigation was settled before any final in cross-border cases in your jurisdiction? determinations on the provision’s validity were made by a court. Section 11 of the Act can also be used to compel witnesses who In light of the MLAT and other inter-agency cooperation, a company have relevant information to testify under oath for the purpose of defending a cartel investigation that has multi-jurisdictional implications, answering questions related to the inquiry. Testimony obtained from a particularly one involving the US or the EU, should be highly sensitive person under a section 11 order cannot be used against that person to the potential collaboration between the Bureau and the enforce- in any subsequent criminal proceedings. This limitation is consistent ment agencies in these jurisdictions. A coordinated defence strategy with the decisions of the Supreme Court of Canada establishing use and is increasingly critical, and the timing of approaches or responses to derivative use immunity for persons compelled to give evidence under the authorities in each jurisdiction should be considered carefully. The statutory powers of investigation. On the other hand, where an individual exposure of key individuals to prosecution and the lack of any limitation employee of a corporation has been compelled to give evidence under period for cartel conduct in Canada are factors of particular concern in section 11, the evidence is generally considered admissible against the developing a comprehensive strategy. accused corporation. CARTEL PROCEEDINGS INTERNATIONAL COOPERATION Decisions Inter-agency cooperation 15 How is a cartel proceeding adjudicated or determined? 13 Is there cooperation with authorities in other jurisdictions? If so, what is the legal basis for, and extent of, such Cartel matters are prosecuted as indictable criminal offences. The cooperation? charges are set out in an indictment and the accused must respond by entering a plea. In practice, many cases are resolved by negotiated plea In international cartel cases, the Competition Bureau (the Bureau) will agreements which are subject to court approval. often cooperate closely with other competition agencies, either through If the accused pleads not guilty, a preliminary inquiry is held before formal procedures or informally. a judge to determine whether there is sufficient evidence to order a Formal procedures involve the invocation of mutual legal assis- trial. The director of public prosecutions (DPP) may and occasionally tance treaties (MLATs) with the United States and other countries. While does skip this step by issuing a ‘preferred indictment’ and proceeding they have been used sparingly, the MLAT arrangements permit Canada directly to trial. and cooperating countries to undertake formal procedures in their Prosecutions may be brought in any of the regular provincial courts own jurisdictions to obtain evidence for a foreign investigation. These of superior jurisdiction or in the Federal Court. Procedure in these pros- arrangements also permit Canadian and other antitrust enforcement ecutions is governed by the Criminal Code and the applicable court’s agencies to coordinate their enforcement activities, exchange confiden- rules of criminal procedure. Proceedings are normally undertaken in tial information and meet regularly to discuss case-specific matters. the provincial superior courts, which have well-established procedures The Bureau may also use competition cooperation agreements, for dealing with trials, evidence, custodial (and other) sentences, and such as those with the United States, the European Union, Australia, other aspects of criminal proceedings. Brazil and others. In general, such agreements build upon the 1995 Under the federal Competition Act (the Act), a corporation has no OECD Recommendation Concerning Cooperation between OECD coun- right to a jury trial, although individuals may elect trial by jury. tries and include provisions relating to notification and consultation when an investigation may affect the interests of another jurisdiction. Burden of proof However, these agreements generally do not provide for the exchange 16 Which party has the burden of proof? What is the level of of documents or other evidence that is subject to domestic confidenti- proof required? ality protections, and they are therefore of limited use in cartel cases. In practice, there may be wide-ranging informal contacts among In cartel cases, as in most other criminal matters, the onus is on the Canadian and foreign investigative agencies on common issues during prosecution to prove each element of the offence beyond a reasonable an inquiry even if confidential evidence is not exchanged. There has also doubt. The ordinary rules of evidence in criminal proceedings gener- been informal coordination of independent and parallel investigations ally apply, although the Act expressly provides for the admissibility into numerous international cartels. This has included parallel searches of statistical evidence that might not be admissible in other types of or other use of formal enforcement powers in several cases, including criminal cases. the investigation into air cargo surcharges. This form of cooperation has been very successful and is now the norm in investigations into cartels Circumstantial evidence affecting North America. In addition, the Bureau now regularly requests 17 Can an infringement be established by using circumstantial that cooperating parties under its immunity and leniency programmes evidence without direct evidence of the actual agreement? provide a ‘waiver’ allowing the Bureau to discuss common confidential information with the US Department of Justice and certain other cartel Pursuant to subsection 45(3) of the Act, a court may infer the exist- enforcement authorities. ence of a conspiracy, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties. However, the conspiracy, agreement or arrangement must be proved beyond reasonable doubt.

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Appeal process to be served in the community). However, legislative amendments to the 18 What is the appeal process? Criminal Code in 2012 eliminated the availability of conditional sentencing for future section 45 and section 47 convictions. There is an automatic right of appeal, by the accused person or the DPP, on any matter that involves a alone, to the provincial Civil and administrative sanctions appellate court or the Federal Court of Appeal, as the case may be. An 20 What civil or administrative sanctions are there for cartel accused person may also, with leave of the court, appeal against a convic- activity? tion on any ground that involves a question of fact or a question of mixed fact and law. The decision of a court of appeal may be appealed to the Cartel cases are normally prosecuted under the criminal provisions of the Supreme Court of Canada, but only if the Supreme Court grants leave to Act and are primarily subject to the criminal sanctions of fines and impris- do so. Sentencing decisions may also be appealed by the accused person onment. It is also common for the director of public prosecutions (DPP) or the DPP with leave of the court. to seek a prohibition order to prevent the future repetition of the offence. On the hearing of an appeal against conviction, the court of appeal For competitor collaboration cases that do not fall into the traditional may allow the appeal where it is of the opinion that the verdict should be hard-core cartel pattern, section 90.1’s reviewable practice provisions set aside on any of the following grounds: permit the Competition Bureau (the Bureau) to pursue a prohibition order • that it is unreasonable or cannot be supported by the evidence; against the conduct in question. (Fines are not available.) Alternatively, it • a wrong decision on a question of law; or might be possible for the commissioner to bring an application under the • there was a miscarriage of justice. joint abuse of dominance provisions in the non-criminal part of the Act. Such applications would be heard before the Competition Tribunal, an The court of appeal may dismiss the appeal where the appeal is not administrative body that considers the evidence on a civil standard of a decided in favour of the appellant on any ground mentioned above, that balance of probabilities. Since 2009, the Competition Tribunal can impose no substantial wrong or miscarriage of justice has occurred, or, notwith- administrative monetary penalties under the abuse of dominance provi- standing any procedural irregularity at trial, the court of appeal is of the sion of the Act of up to C$10 million for the first order and of up to C$15 opinion that the appellant suffered no prejudice thereby. Where a court of million for subsequent orders. appeal allows an appeal it will quash the conviction and direct a judgment To date there have been very few section 90.1 or joint domi- of acquittal or order a new trial. If an appeal is from an acquittal, the court nance cases, and they have all been settled with consensual remedial of appeal may order a new trial, or enter a verdict of guilty. agreements.

SANCTIONS Guidelines for sanction levels 21 Do fining or sentencing principles or guidelines exist? If yes, Criminal sanctions are they binding on the adjudicator? If no, how are penalty 19 What, if any, criminal sanctions are there for cartel activity? levels normally established? What are the main aggravating and mitigating factors that are considered? Given their status as the most serious indictable offences under the federal Competition Act (the Act), cartel prosecutions attract significant While the Criminal Code enumerates a range of binding sentencing penalties – up to C$25 million per count charged for companies and for principles, they provide considerable latitude and the determination of individuals up to a C$25 million fine or 14 years’ imprisonment. There is sentence is ultimately a matter for the discretion of the court. In addi- no maximum fine for foreign-directed conspiracies or bid rigging. Courts tion to sentencing principles, the Criminal Code provides the following list have emphasised, in both the competition law and general criminal law of aggravating and mitigating factors to be considered when sentencing contexts, that fines must be large enough to deter powerful companies organisations (ie, corporations): and must not become simply a cost of doing business. To date, C$10 • any advantage realised by the organisation as a result of the offence; million is the highest fine for a single count conspiracy under section 45. • the degree of planning involved in carrying out the offence and the This amount (the previous statutory maximum) was imposed for the first duration and complexity of the offence; time in January 2006 in the Carbonless Paper case, and again in 2012 (in • whether the organisation has attempted to conceal or convert its respect of conduct occurring under the old offence) in the Polyurethane assets in order to show that it is not able to pay a fine or make Foam case. The section 46 offence relating to implementing a foreign ; conspiracy in Canada carries no fine ceiling, and in 1999-2000 SGL Carbon • the impact that the sentence would have on the economic viability AG and UCAR Inc agreed to pay fines of C$13.5 million and C$12 million of the organisation and the continued employment of its employees; respectively under that provision in the Graphite Electrodes case. • the cost to public authorities of the investigation and prosecution of It is also possible for a prosecution to proceed with multiple counts, the offence; each constituting a separate offence. This can result in total fines in • any regulatory penalty imposed on the organisation or one of its excess of the statutory maximum, which has occurred following guilty representatives in respect of the conduct that formed the basis of pleas in a number of cartel cases. These include some of the highest the offence; fines in the history of Canadian criminal law: C$50.9 million against F • whether the organisation was – or any of its representatives who Hoffmann–La Roche for multiple conspiracies involving vitamin products; were involved in the commission of the offence were – convicted of a and C$30 million against Yazaki Corporation in April 2013 for bid rigging similar offence or sanctioned by a regulatory body for similar conduct; in the supply of wire harnesses (auto parts). The latter penalty is the • any penalty imposed by the organisation on a representative for highest fine ever imposed under the bid rigging offence. their role in the commission of the offence; While the maximum prison sentences available under sections 45 • any restitution that the organisation is ordered to make or any (conspiracy) and 47 (bid rigging) of the Act are 14 years, the imposition of amount that the organisation has paid to a victim of the offence; and custodial sentences against individual cartel offenders to date has been • any measures that the organisation has taken to reduce the likeli- relatively rare. Virtually all prison sentences for cartel conduct have been hood of it committing a subsequent offence. less than two years, with most of those being conditional sentences (ie,

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The Bureau’s September 2018 leniency policy establishes a frame- agencies. A supplier is ineligible to do business with the government of work for determining the recommendation that it will make to the DPP Canada if it, or a member of its board of directors, has been convicted of regarding the fine to be sought in cases involving cooperating parties. bid rigging or any other anticompetitive activity under the Competition The policy uses an initial starting point of 20 per cent of the volume of Act or a similar foreign offence. Where an affiliate of a supplier has been commerce affected by the cartel in Canada. Of this 20 per cent starting convicted of such an offence, an assessment will be made to determine point, 10 per cent is viewed as a proxy for the overcharge from the cartel if there was any participation or involvement from the supplier in the activity and 10 per cent is viewed as a deterrent. If the precise overcharge actions that led to the affiliate’s conviction. If so, the supplier will be can be calculated based on compelling evidence, then the 10 per cent rendered ineligible. If a supplier is charged with an offence, it may also proxy will be replaced by the actual overcharge. Cooperation discounts be suspended from doing business with the government pending the (up to 50 per cent) and any aggravating or mitigating factors are then outcome of the judicial proceedings. applied to the base fine. In addition to the aggravating and mitigating A supplier convicted of a Competition Act offence will be ineligible factors set out above, the September 2018 leniency policy notes that the for 10 years, but may have its ineligibility period reduced by five years existence of a credible and effective corporate compliance programme if it demonstrates that it cooperated with law enforcement authori- will serve as a mitigating factor in the calculation of the fine amount. ties or has undertaken remedial action to address the wrongdoing. An Prior to the September 2018 leniency policy, the 50 per cent coop- administrative agreement would then be imposed to monitor the suppli- eration discount, which was automatic, was only available to the first er’s progress. leniency applicant, with subsequent leniency applicants only eligible for Exceptions to the policy may apply in circumstances in which it is discounts up to 30 per cent. The updated leniency policy permits a coop- necessary to the public interest to enter into business with a supplier eration credit of up to 50 per cent for every leniency applicant, which is that has been convicted. Possible circumstances necessary to the public dependent on the value of the leniency applicant’s cooperation. interest could include: While these criteria and the Bureau recommendations are not • no other supplier is capable of performing the contract; binding on the DPP or the court when a defendant presents a guilty • an emergency; plea to the court for acceptance, nor are they binding on the DPP when • national security; making submissions on the appropriate sentence after obtaining a • health and safety; and conviction at trial, they are given significant consideration in the nego- • economic harm to the financial interests of the government of tiation of guilty plea arrangements. With the Public Prosecution Service Canada and not of a particular supplier. of Canada (PPSC) being a co-author of the 2018 revised immunity and leniency policies, the DPP is generally expected to act in a manner In March 2018, the federal government announced that the Integrity consistent with these policies. Regime will be enhanced to introduce greater flexibility in debarment If a guilty plea is negotiated with the DPP, it will usually include decisions and increase the number of triggers that can lead to debar- agreement upon a joint submission to the court as to the proper penalty. ment (including the addition of more federal offences, certain provincial The court is not bound by this recommendation, but will not reject it offences, ‘foreign civil judgments for misconduct’ and debarment deci- unless it is either contrary to the public interest or brings the adminis- sions of provinces, foreign jurisdictions and international organisations). tration of justice into dispute. The government announced that the enhanced Integrity Regime will be reflected in a revised Ineligibility and Suspension Policy. A proposed Compliance programmes draft of the revised Ineligibility and Suspension Policy was released for 22 Are sanctions reduced if the organisation had a compliance public consultation in the fall of 2018. To date, the revised Ineligibility programme in place at the time of the infringement? and Suspension Policy has not been finalised. Many provincial (and also municipal) governments have also Under the 2018 revised Immunity and Leniency Program, if the Bureau established rules governing debarment from their procurement is satisfied that a compliance programme in place at the time the offence processes. For example, the Quebec Integrity in Public Contracts Act occurred was credible and effective, consistent with the approach set prohibits a corporation convicted of price-fixing or bid rigging under the out in the Bureau’s Bulletin on Corporate Compliance Programs, the Competition Act in the previous five years from entering into contracts Bureau will treat the compliance programme as a mitigating factor with public bodies or municipalities. when making its recommendation regarding sanctions to the DPP. Parallel proceedings Director disqualification 25 Where possible sanctions for cartel activity include criminal 23 Are individuals involved in cartel activity subject to orders and civil or administrative penalties, can they be pursued prohibiting them from serving as corporate directors or in respect of the same conduct? If not, when and how is the officers? choice of which sanction to pursue made?

Individuals could be prohibited from serving as corporate directors or Once proceedings have been initiated under the criminal provisions in officers pursuant to a judicial order pursuant to section 34 of the Act. Part VI of the Act (including section 45 of the Act), proceedings under The maximum duration of such orders cannot exceed 10 years. the various civil reviewable practices provisions cannot be brought on the basis of substantially the same facts (and vice versa). The choice Debarment of which enforcement track to pursue is a matter of discretion for the 24 Is debarment from government procurement procedures Commissioner and the DPP. The Bureau has issued guidelines indicating automatic, available as a discretionary sanction, or not that hard-core cartel conduct normally will be prosecuted criminally available in response to cartel infringements? and that other types of competitor collaboration normally will be dealt with under the section 90.1 civil provisions. However, at the initial stage A revised Integrity Regime was put in place by the Canadian govern- of an investigation, the Bureau may proceed with both the criminal and ment in July 2015. The regime applies to procurement and real property civil tracks of the investigation in parallel, until such time that it has transactions undertaken by federal government departments and adequate information to decide which track is more appropriate. www.lexology.com/gtdt 67 © Law Business Research 2020 Canada McMillan LLP

PRIVATE RIGHTS OF ACTION Protocol for the Management of Multijurisdictional Class Actions in 2011, which was revised in 2018. This protocol has been adopted by Private damage claims courts in a number of provinces. 26 Are private damage claims available for direct and indirect To date, most cases have been resolved through settlements, purchasers? Do purchasers that acquired the affected which are subject to the approval of the court to ensure they are fair, product from non-cartel members also have the ability to reasonable and in the best interests of the proposed class. In recent bring claims based on alleged parallel increases in the class proceedings involving the foreign exchange markets, 13 defend- prices they paid (‘umbrella purchaser claims’)? What level of ants have thus far agreed to settlements which collectively exceed damages and cost awards can be recovered? C$110 million. The largest settlement to date involved a long-running class action against Microsoft for C$517 million. Most recently, in Section 36 of the federal Competition Act (the Act) grants private parties the international auto parts conspiracies, the plaintiffs have so far the right to recover in ordinary civil courts any losses or damages entered into settlements with 37 defendants, totalling approximately suffered as a result of a breach of the criminal provisions of the Act, as C$138 million. well as their costs of investigation and litigation. Only single damages are available. The Act expressly provides that a prior conviction for COOPERATING PARTIES an offence is, in the absence of any evidence to the contrary, proof of liability. However, there are no conditions precedent to a private action Immunity under the Act, and the absence of a conviction, or even the refusal of the 28 Is there an immunity programme? If so, what are the basic commissioner to commence an inquiry, does not bar or provide a valid elements of the programme? What is the importance of being defence to such an action. ‘first in’ to cooperate? Both direct and indirect purchasers may bring private claims in Canada. The passing-on defence is not permitted. The Supreme Court of The Competition Bureau (the Bureau) has an immunity programme Canada held in 2013 that the possibility of double recovery is an issue to whereby a company or individual implicated in cartel activity may offer be dealt with when assessing damages at trial, and should not be a bar to cooperate with the Bureau and request immunity. The term ‘immu- to indirect purchaser claims. nity’ refers to a grant of full immunity from prosecution by the director In a September 2019 decision, the Supreme Court of Canada held of public prosecutions (DPP) on the recommendation by the Bureau. As that ‘umbrella purchaser’ claims are permitted under section 36 of the of September 2018, the first party to come forward where the Bureau is Act, assuming the claimant can establish causation and injury, as the unaware of an offence, or before there is sufficient evidence for a referral provision offers a cause of action to ‘any person who has suffered loss of the case to the DPP for possible prosecution, is eligible for a grant of or damage as a result of’ cartel conduct. The court rejected the argu- interim immunity. The applicant must have terminated its participation ment that such claims should be barred for subjecting defendants to in illegal activities and must not have coerced others to participate in ‘indeterminate liability’. illegal activities. The grant of interim immunity is a conditional immu- There is no private right of action in relation to the competitor nity agreement that sets out the applicant’s ongoing cooperation and agreements reviewable practice in section 90.1 of the Act. However, in full disclosure obligations that must be fulfilled in order for the DPP to some situations, private parties may be able to use section 36 to bring finalise the immunity agreement. a private action in respect of an alleged breach of the conspiracy or Pursuant to the grant of interim immunity, the applicant will need bid rigging provisions even if it involves conduct that the Bureau, as a to provide complete, timely and ongoing cooperation throughout the matter of enforcement discretion, would treat under the civil rather than course of the Bureau’s investigation and subsequent prosecutions. This criminal track. entails full, frank and truthful disclosure of non-privileged information and records. The applicant’s counsel will first proffer what records, Class actions evidence or testimony can be provided. Once a grant of interim immu- 27 Are class actions possible? If so, what is the process for such nity is concluded with the DPP, witnesses will be interviewed and they cases? If not, what is the scope for representative or group may subsequently be called to testify in court proceedings. actions and what is the process for such cases? As of September 2018, if a company qualifies for immunity, all current directors, officers and employees that desire immunity will Class actions are available and are now a virtual certainty in multiple need to demonstrate their knowledge of or participation in the unlawful provinces in Canada after (and often before) a conviction under the Act conduct and their willingness to cooperate with the Bureau’s investi- in situations where cartel activity may have occurred. A vigorous and gation. If they do so, they will also receive immunity provided they effective plaintiffs’ bar has evolved in Canada, often acting in conjunction offer complete and timely cooperation. Former directors, officers and with US plaintiffs’ counsel in cross-border cases. Claims are normally employees of the company who admit their knowledge of or participa- brought in provincial courts – most typically in British Columbia, Ontario tion in an offence under the Act may also be given immunity in exchange and Quebec. Cases may be brought on the basis of classes defined by for cooperation, provided they are not currently employed by another reference to the province in question, but some provinces also allow member of the cartel that is being investigated. This determination is to nationwide class actions to be brought in their courts. Class actions be made by the Bureau on a case-by-case basis. may also be initiated on a national basis in the Federal Court. These regimes follow an ‘opt-out’ model that allows individual purchasers to choose not to participate in a class action and proceed with their own individual claims. There is no formal procedure for consolidating or coordinating parallel actions brought in multiple courts. However, in order to facilitate the management of multijurisdictional class actions by making use of existing class action , rules of court and rules of civil proce- dures, the Canadian Bar Association developed the Canadian Judicial

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Subsequent cooperating parties participation in the unlawful conduct and are prepared to cooperate in 29 Is there a formal programme providing partial leniency for a timely fashion with the Bureau’s investigation in an ongoing manner. parties that cooperate after an immunity application has been Other conspirators who seek to resolve their exposure later in the made? If so, what are the basic elements of the programme? investigation will be progressively less able to negotiate favourable fine If not, to what extent can subsequent cooperating parties reductions, unless they are able to demonstrate a higher value associ- expect to receive favourable treatment? ated with their cooperation. In addition, second and subsequent leniency applicants will have less ability to negotiate favourable terms in connec- The Bureau has created a leniency programme that complements its tion with the exposure of individuals to potential prosecution. immunity programme for candidates that are not eligible for a grant of The concept of ‘immunity plus’ is also addressed in the leniency immunity. The Bureau will recommend to the DPP that qualifying appli- programme. Parties that are not the first to disclose conduct to the cants be granted recognition for timely and meaningful assistance to Bureau may nonetheless qualify for additional favourable treatment if the Bureau’s investigation. A prompt agreement to plead guilty along they are the first to disclose information relating to another offence for with valuable cooperation can earn a leniency applicant a reduction of which they may receive immunity. If the company pleads guilty to the up to 50 per cent of the fine that would otherwise have been recom- first offence for which it has not been granted immunity, its disclosure mended by the Bureau to the DPP. At the request of the first leniency of the second offence will be recognised by the Bureau and the DPP applicant (ie, the first cooperating party after the immunity applicant) in their sentencing recommendations with respect to the first offence, that is a corporate applicant, the Bureau will also recommend to the resulting in an additional 5 per cent to 10 per cent discount off the DPP not to charge the directors, officers or employees of the applicant corporate fine for the first offence and potentially an additional favour- who admit knowledge of or participation in the unlawful conduct and are able treatment for individuals. prepared to cooperate. Providing all leniency applicants with the possibility to receive a Approaching the authorities reduction of up to 50 per cent of the fine that otherwise would have 31 Are there deadlines for initiating or completing an application been recommended is a new development in the September 2018 leni- for immunity or partial leniency? Are markers available and ency programme. Previously, only the first-in leniency applicant was what are the time limits and conditions applicable to them? eligible for this 50 per cent reduction, which was automatic, with subse- quent applicants only eligible for a fine reduction of up to 30 per cent. There are no deadlines for approaching the Bureau. However, the avail- In the new programme, the percentage of the fine reduction is to be able benefits decline for subsequent cooperating parties. To increase determined having regard to the extent that the leniency applicant’s its likelihood of obtaining immunity or a substantial leniency discount, cooperation adds to the Bureau’s ability to advance its investigation a party should approach the authorities as soon as legal counsel has and pursue other culpable parties. The Bureau will take into account information indicating that an offence may have been committed. a number of factors, including the timing of the leniency application A ‘marker’ can be obtained that will allow counsel time to complete (relative to other parties in the cartel as well as relative to the stage of a full investigation. Once a marker is granted, the applicant has 30 the Bureau’s investigation), the timeliness of disclosure, the availability, calendar days to provide the Bureau a detailed proffer describing the credibility and reliability of witnesses, the relevance and materiality of illegal activity, its effects in Canada and the supporting evidence. If the applicant’s records, and any other factor relevant to the develop- an applicant fails to provide its proffer within 30 days, or within any ment of the Bureau’s investigation into the matter. An additional fine extended period of time agreed by the Bureau, the marker will automati- reduction credit of 5 to 10 per cent is available to a party eligible for cally lapse. The marker can also be cancelled if the proffer is incomplete ‘immunity plus’. or insufficient. In situations involving multiple jurisdictions, a party All leniency applicants must meet the requirements of the whose business activities have a connection to Canada should consider programme, which are similar to those of the immunity programme, contacting the Bureau either prior to, or immediately after, approaching including full, frank, timely and truthful cooperation. foreign competition law authorities.

Going in second Cooperation 30 How is the second cooperating party treated? Is there an 32 What is the nature, level and timing of cooperation that ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, is required or expected from an immunity applicant? Is how does it operate? there any difference in the requirements or expectations for subsequent cooperating parties that are seeking partial A party will not be eligible for immunity if the Bureau has been made leniency? aware of the offence by an earlier applicant for immunity in respect of the same alleged cartel conduct. However, the second party to offer A participant in the Bureau’s immunity or leniency programmes must to cooperate will, as a practical matter, be considered for favourable provide a: treatment and may, if the first party fails to fulfil the requirements of the immunity programme, be able to request immunity at that time. full, complete, frank and truthful disclosure of all non-privileged Under the Bureau’s September 2018 leniency programme, the information, evidence and records in its possession, under its timing of the leniency application is an important consideration in the control or available to it, wherever located, that in any manner determination of the percentage fine reduction that will be available to relate to the anticompetitive conduct for which immunity is sought. the applicant. In the previous version of the leniency programme, there was more certainty as the second party benefited from a penalty reduc- Participants must also take all lawful measures to secure the coopera- tion of 50 per cent of the fine that would otherwise be recommended, but tion of current and former directors, officers and employees for the the new programme has made it clear that the extent of the applicant’s duration of the Bureau’s investigation and any ensuing prosecutions, cooperation will be one of the factors to be considered in this determina- including appearing for interviews and potentially providing testimony tion. The first-in leniency applicant will be able to obtain protection for in judicial proceedings. All such cooperation efforts are at the cooper- its employees from prosecution, so long as they admit knowledge or ating party’s own expense. www.lexology.com/gtdt 69 © Law Business Research 2020 Canada McMillan LLP

Confidentiality Corporate defendant and employees 33 What confidentiality protection is afforded to the immunity 35 When immunity or partial leniency is granted to a corporate applicant? Is the same level of confidentiality protection defendant, how will its current and former employees be applicable to subsequent cooperating parties? What treated? information will become public during the proceedings and when? If a company qualifies for immunity, all present directors, officers and employees who admit their knowledge of or participation in the illegal The Bureau treats as confidential any information obtained from a party activity as part of the corporate admission, and who provide complete, requesting immunity or leniency. The only exceptions to this policy are timely and ongoing cooperation, will qualify for immunity. Agents of a when disclosure: company and past directors, officers and employees who admit their • is required by law; knowledge of or participation in the illegal activity and who offer to • is necessary to obtain or maintain the validity of a judicial authori- cooperate with the Bureau’s investigation may also qualify for immu- sation for the exercise of investigative powers; nity. However, this determination will be made on a case-by-case basis • is for the purpose of securing the assistance of a Canadian law and immunity is not automatic for agents or past employees. Even if enforcement agency in the exercise of investigative powers; a corporation does not qualify for immunity (eg, if it coerced others to • is agreed to by the cooperating party; participate) past or present directors, officers and employees who come • has already been made public by the party; forward with the corporation to cooperate may nonetheless be consid- • is necessary for the administration or enforcement of the Act; or ered for immunity as if they approach the Bureau individually. • is necessary to prevent the commission of a serious crim- At the request of the applicant, the Bureau will recommend that inal offence. no charges be brought against current employees of the second coop- erating party (the first leniency programme applicant) who admit their In addition, unless required by law or on consent, the Bureau will not knowledge of or participation in the illegal activity. Former employees inform other competition agencies with which it may be cooperating are likely to be protected as well if they admit their involvement, of the identity of an immunity or leniency applicant. However, as part assuming no other contrary factors exist (eg, subsequently working of an immunity or leniency applicant's ongoing cooperation, absent for another party to the cartel). Subsequent cooperating parties may compelling reasons, the Bureau will expect the applicant to provide its be able to obtain protection for some of their directors, officers and consent in the form of a waiver allowing communication of information employees, but these determinations will be made on a case-by- with jurisdictions to which the applicant has made similar applications case basis. for immunity or leniency. Such waivers are expected to be provided While immunity or leniency may be revoked where a party fails promptly and cover both substantive and procedural information. to comply with the immunity or leniency programme requirements, With respect to private actions, the Bureau’s policy is to provide the revocation generally will only apply to the non-cooperating party. confidential information from immunity or leniency applicants only in A company’s immunity or leniency can be revoked while its cooper- response to a court order. In the event of such an order, the Bureau will ating directors, officers, employees and agents retain their protection. take all reasonable steps to protect the confidentiality of such informa- Likewise, an individual’s immunity can be revoked while the individual’s tion, including by seeking a protective order from the court. employer retains its immunity or leniency (provided it has discharged its obligation to take all lawful measures to attempt to secure the indi- Settlements vidual’s cooperation). 34 Does the investigating or prosecuting authority have the ability to enter into a plea bargain, settlement, deferred Dealing with the enforcement agency prosecution agreement (or non-prosecution agreement) or 36 What are the practical steps for an immunity applicant other binding resolution with a party to resolve liability and or subsequent cooperating party in dealing with the penalty for alleged cartel activity? What, if any, judicial or enforcement agency? other oversight applies to such settlements? The immunity and leniency processes typically involve the While the Bureau may make recommendations to the DPP with respect following steps. to the severity of any penalty or obligation to be imposed on parties that cooperate in cartel investigations (and those that do not), the DPP Initial contact and marker retains the ultimate discretion concerning decisions to prosecute, nego- Anyone may initiate a request for immunity or leniency in a cartel case tiation of plea bargains and sentencing submissions presented in court. by communicating with the deputy commissioner of competition – cartel The DPP and defence counsel may make recommendations but directorate or their designate. Very basic information about the industry cannot fetter the sentencing discretion of the court. In practice, plea or product will need to be provided, usually through a hypothetical oral bargains with joint recommendations on sentencing have almost always disclosure, to determine whether the Bureau is already investigating been accepted. Case law strongly favours acceptance of joint recom- the matter. The party may be granted a ‘marker’ to secure its place in mendations, which can only be refused where the court’s acceptance of the programme, and will normally be asked to confirm its participation the recommended sentence would ‘bring the administration of justice in the immunity or leniency programme within four business days of into disrepute’ or otherwise be contrary to the public interest. receiving a marker. Following confirmation of a marker, the Bureau will expect the applicant to perfect its marker by proceeding promptly to provide a proffer. The usual deadline is 30 days, although extensions to provide additional information emerging from an ongoing internal investigation may be given in appropriate circumstances (eg, complex ongoing cross- border investigations).

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Proffer Representing employees If the party decides to proceed with the immunity or leniency application, 38 May counsel represent employees under investigation in it will need to provide a detailed description of the illegal activity and to addition to the corporation that employs them? When should disclose sufficient information for the Bureau to determine whether it a present or past employee be advised to obtain independent might qualify for immunity or leniency. This is normally done by way of legal advice or representation? a privileged proffer by legal counsel that describes the conduct and the potential evidence that the cooperating party can provide. At this stage, As individual employees and the company can both be charged with an the Bureau may request an interview with one or more witnesses, or offence under the federal Competition Act (the Act), there is a potential an opportunity to view certain documents, prior to recommending that conflict of interest if counsel acts for both the company and employees the DPP provide a grant of interim immunity or leniency. The Bureau that are also targets of an investigation or prosecution. For example, also seeks information during the proffer stage about the volume of an employee may wish to obtain immunity in exchange for testimony commerce affected by the cartel in Canada. that includes evidence contrary to the interests of the corporation, or If the Bureau determines that the party demonstrates its capacity the corporation may wish to claim that the employee’s actions were not to provide full cooperation and that it meets the requirements of the authorised by management. This is less of a concern when employees applicable programme, it will present all relevant proffered information are not being targeted personally in the investigation and are providing and a recommendation regarding the party’s eligibility to the DPP. The cooperation pursuant to the company’s participation in the immunity or DPP will then exercise its independent discretion to determine whether leniency programme. to provide the party with a grant of interim immunity or leniency, as the Counsel for a corporation must caution employees that he or case may be. she acts for the company alone and, if they believe that their interests may conflict with the company’s, they should obtain independent legal Grant of interim immunity or leniency agreement advice. Counsel for the company will be free to act for both the corpo- If the DPP accepts the Bureau’s recommendation, the DPP will issue a ration and the employee if they both consent to a waiver of potential grant of interim immunity or enter into a plea agreement with the party conflicts of interest and confidentiality arrangements as between them. that will include all of the party’s continuing obligations. However, the Competition Bureau (the Bureau) investigators or DPP prosecutor may resist joint representation if there is a risk of divergent Full disclosure and cooperation interests. After the party receives a grant of interim immunity or enters into a plea agreement with the DPP, it will be required to provide full disclosure Multiple corporate defendants and cooperation with the investigation and any ensuing prosecution of 39 May counsel represent multiple corporate defendants? Does other parties. it depend on whether they are affiliated?

Immunity agreement (for the immunity programme only) Affiliated companies normally do not require separate representation. Once a party has satisfied all of its obligations under the grant of interim There is a potential for conflicts of interest among multiple corpo- immunity, the Bureau will recommend to the DPP to finalise the grant of rate defendants (which are not affiliates) during Bureau investigations immunity to the applicant. The final grant of immunity will not ordinarily and prosecutions, as well as in civil litigation where there are poten- be finalised until either: the statutory period for any filing of a notice of tial cross-claims between co-defendants. However, on occasion, law appeal has lapsed in the case of any related criminal prosecution, or firms have acted for multiple defendants where the defendants have the commissioner and the DPP have no reason to believe that further consented and appropriate confidentiality and conflict management assistance from the applicant could be necessary. arrangements have been established between lawyers at the firm engaged in the matters. These arrangements have usually occurred DEFENDING A CASE where the parties concerned have been involved in related conspiracies, but the defendants were not in a situation of actual conflict. Disclosure As a matter of current practice, the DPP will be unlikely to partici- 37 What information or evidence is disclosed to a defendant by pate in joint resolution discussions involving multiple parties. the enforcement authorities? Payment of penalties and legal costs The director of public prosecutions (DPP) is required to produce to 40 May a corporation pay the legal penalties imposed on its an accused all relevant information, whether or not the DPP intends employees and their legal costs? to introduce it into evidence and whether it is inculpatory or exculpa- tory. The DPP does have discretion to withhold information as to the A corporation can indemnify an employee for legal costs and fines timing of the disclosure where necessary for the protection of witnesses incurred as a result of a criminal investigation or conviction. While or a continuing investigation but will have to disclose this information most indemnity agreements or insurance policies contain exclusions for before the trial. This disclosure obligation begins at the outset of the deliberate wrongdoing, there is no law prohibiting such indemnification prosecution at the first appearance and continues until the end of the if the corporation chooses to do so. However, there has been at least one proceedings. The right to receive disclosure of all relevant information instance in which a convicting court ordered a corporation not to pay the from the DPP is protected by the Canadian constitution and a violation of fine imposed on an individual employee. this right can lead to an abuse of process action, in which the court can stay the criminal proceedings and acquit the defendant.

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Taxes Section 718.21 of the Criminal Code requires a court sentencing a corpo- 41 Are fines or other penalties tax-deductible? Are private ration to take into consideration whether the organisation was – or damages payments tax-deductible? any of its representatives who were involved in the commission of the offence were – convicted of a similar offence or sanctioned by a regula- Fines and penalties can be categorised as follows: tory body for similar conduct. It has not been conclusively determined • judicial – these are imposed by a court of law for a breach of any whether this provision should be interpreted as applying only to other ; and sanctions imposed in Canada, or whether fines paid in other jurisdic- • statutory – these are imposed as a result of the application of stat- tions can also be considered. However, an obiter comment in a 2012 utes (eg, the Competition Act). Federal Court sentencing decision (R v Maxzone Canada Corporation) suggested that the mere fact that a company or individual had been Damages include a payment in settlement of a damages claim to avoid penalised in another jurisdiction should not be considered relevant or terminate litigation, even where there was no admission of any when determining a sentence in Canada. wrongdoing. Paragraph 18(1)(a) of the Income Tax Act provides that, in calcu- Getting the fine down lating a taxpayer’s income from a business or property, no deduction 43 What is the optimal way in which to get the fine down? shall be made in respect of an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining In Canada, plea negotiations in criminal matters are a well-recognised or producing income from the business or property. As stated by the and accepted practice. The single most effective consideration in nego- Supreme Court of Canada in 65302 British Columbia Ltd v Canada, ‘if tiating a plea agreement and sentencing recommendation is the stage the taxpayer cannot establish that the fine was in fact incurred for the in the investigation at which the party decides to come forward. Even purpose of gaining or producing income, then the fine or penalty cannot where there are serious aggravating elements – instigation, multiple be deducted’. charges, obstruction or previous convictions – if the party comes For purposes of establishing whether a fine or penalty has been forward before the investigation is complete and at an early enough incurred for the purpose of gaining or producing income the taxpayer: stage to provide valuable assistance to the investigators for the prosecu- • need not have attempted to prevent the act or omission that tion of other parties, a significant fine reduction or leniency for exposed resulted in the fine or penalty; and individuals (or both) may be negotiated. Other substantive factors may • need only establish that there was an income-earning purpose for also be important elements in a negotiated settlement of the company’s the act or omission, regardless of whether that purpose was actu- exposure to prosecution, including the quality of the cooperation, the ally achieved. capacity to pay a fine, the existence or lack of an effective corporate compliance programme, the degree of management awareness of the In the 65302 British Columbia Ltd decision, the Supreme Court of Canada actions of individual participants and passive or reluctant participation also stated that: ‘it is conceivable that a breach could be so egregious as opposed to involvement in the instigation of the offence. or repulsive that the fine subsequently imposed could not be justified as being incurred for the purpose of producing income’. The court did not, UPDATE AND TRENDS however, give any further guidance in this respect, other than to indicate that ‘such a situation would likely be rare’. Recent cases 44 What were the key cases, judgments and other developments International double jeopardy of the past year? 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In The most important judgment of the past year is the Supreme Court of private damage claims, is overlapping liability for damages in Canada decision in the Godfrey litigation (optical disk drives). The court other jurisdictions taken into account? determined that: • in order to certify a class action, class action plaintiffs do not need It is possible that the Bureau may investigate and seek to prosecute a methodology to show harm to all class members or a method- individuals who also have exposure in other jurisdictions, assuming it ology to assess which class members were harmed – it is sufficient can obtain personal jurisdiction over them. For example, in the Vitamins to show harm to the purchaser level (however, at trial, only class case, the Canadian authorities negotiated guilty pleas with fines (but no members that actually suffered harm can recover damages); custodial penalties) with three executives of F Hoffmann–La Roche that • umbrella purchasers have a cause of action and their claims can were also prosecuted in the US. be certified; Similarly, the Bureau will take into account sales from foreign • the statutory cause of action under section 36 of the federal cartel participants to Canadian customers. It has on occasion expressed Competition Act (the Act) is not an exhaustive code and does not the view that it can take into account indirect sales into Canada made by preclude parallel common law causes of actions; and a cartel participant when asserting jurisdiction or imposing penalties. A • discoverability principles apply to limitation periods for a cause of possibility, therefore, exists for such ‘double jeopardy’ in international action under the Act. cartel cases. In its leniency programme FAQs, the Bureau indicates that: Regime reviews and modifications [W]here cartel members are penalized in another jurisdiction 45 Are there any ongoing or anticipated reviews or proposed for the direct sales that led to the indirect sales into Canada, the changes to the legal framework, the immunity/leniency Bureau may consider, on a case-by-case basis, whether the penal- programmes or other elements of the regime? ties imposed or likely to be imposed in the foreign jurisdiction are adequate to address the economic harm in Canada from the indi- In July 2020, the Competition Bureau (the Bureau) initiated a public rect sales. consultation process for its proposed updates to its guidelines setting out its policy on competitor agreements, originally released in December

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2009. The proposed revisions reflect the Bureau’s enforcement experi- ence since 2009 and several recent related court rulings.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients? William Wu [email protected]

In April 2020, the Bureau issued a statement providing specific guide- Guy Pinsonnault lines relating to competitor collaboration during the covid-19 pandemic. [email protected] In its statement, the Bureau acknowledged that the exceptional Neil Campbell circumstances created by the covid-19 pandemic ‘may call for the [email protected] rapid establishment of business collaborations of limited duration and scope to ensure the supply of products and services that are critical to Brookfield Place, Suite 4400 Canadians’. With this recognition, the Bureau indicated that it generally 181 Bay Street will not exercise scrutiny ‘in circumstances where there is a clear imper- Toronto ative for companies to be collaborating in the short-term to respond to M5J 2T3 the crisis, where those collaborations are undertaken and executed in Canada good faith and do not go further than what is needed’. Tel: +1 416 865 7000 In addition, the Bureau announced that it has set up a team tasked Fax: +1 416 865 7048 with assessing proposed collaborations and providing rapid informal www.mcmillan.ca guidance. The Bureau asks that businesses seeking such guidance provide the following information in order to ensure that the scope and duration of a proposed business collaboration are indeed necessary for responding to the crisis: • the firms involved and the parameters of the collaboration including its proposed scope and duration; • a detailed description of how the collaboration is intended to achieve a clearly identified objective related to covid-19 that is in the public interest; • an explanation of why the collaboration is necessary to meet this objective; and • a description of any guidance sought from relevant authorities on whether the collaboration contemplated will actually further Canada’s response to covid-19.

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Ding Liang DeHeng Law Offices

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? Draft AML amendment The Anti- Law of China (AML) of 2008 is the main legislation in SAMR solicited public comments on a Draft of Amendments to the China governing cartels. In addition, the State Administration for Market AML (the Draft AML) in January 2020. The Draft AML is still subject to Regulation (SAMR), the consolidated anti-monopoly enforcement consultation and further review by China’s administrative and legisla- agency, issued the Interim Provisions on the Prohibition of Monopoly tive bodies. While there is no fixed timetable for formal adoption, the Agreements in 2019, which provides more detailed rules to regulate Draft AML could be passed by the National People’s Congress as early cartel arrangements. as 2021 if the remaining process runs smoothly. In January 2019, the Anti-monopoly Committee of the State Council The Draft AML proposes increasing fines for cartel arrangements (AMC) issued the Guidelines for the Application of the Leniency Program and changes to the AML to allow for ‘hub and spoke’ arrangements to be to Cases Involving Horizontal Monopoly Agreements (the Leniency investigated and dealt with. Guidelines). The Leniency Guidelines was published in June 2020 and provides more detailed provisions to regulate cartels and leniency. Increasing fines against cartel arrangements The Draft AML proposes the following: Relevant institutions • a new fine applied to undertakings found to be organising or 2 Which authority investigates cartel matters? Is there facilitating others to reach cartel agreements of 10 per cent of its a separate prosecution authority? Are cartel matters revenue for the preceding year; adjudicated or determined by the enforcement agency, a • the fine for trade associations organising or facilitating others to separate tribunal or the courts? reach cartel agreements to be increased from 500,000 yuan to 5 million yuan; SAMR and the Provincial Market Regulatory Department (PMRD) – • the fine for agreeing to a cartel arrangement that is not yet imple- the market regulatory departments of the governments of provinces, mented to be increased from 500,000 yuan to 50 million yuan; and autonomous regions and municipalities directly under the Central • a new fine applied to undertakings that agree to a cartel arrange- Government – are the competition authorities in China and investigate ment, but have no revenue for the previous year of 50 million yuan. cartel arrangements. Many cartel investigations are conducted by either SAMR or PMRD. In practice, ‘preceding year’ refers to the fiscal year before an investiga- SAMR may assign certain cartel cases to PMRD if the target compa- tion is launched. A fiscal year spans from 1 January to 31 December nies are located in one province. For these assigned cartel cases, SAMR based on the Gregorian calendar. Where an undertaking adopts a may accompany PMRD to carry out on-site dawn raids and PMRD will different fiscal year system, adjustments shall be made accordingly. report to SAMR from time to time regarding the development of the investigation. If PMRD finds no cartel behaviour, SAMR may accept Hub & spoke collusion this conclusion. However, if SAMR does not agree with the approach of In a hub and spoke collusion, the common supplier is the ‘hub’, while the PMRD, it may rule on the matter as if it has not assigned the case the distributors are the ‘spokes’. The hub facilitates the coordination of to the PMRD. competition between the spokes and there is no direct contact between According to the AML, the AMC was established to organise, coor- the spokes. In this way, a cartel can be achieved based on indirect dinate and supervise anti-monopoly activities. The AMC serves as a communication between the cartel’s horizontally aligned members. policy-making body and is not involved in the specific anti-trust cases. The AML in its current form is unable to deal with such an arrange- Cartel agreements are not criminal violations in China. Therefore, ment, as it only applies to competing undertakings and lacks relevant except for bid-rigging or obstructing law enforcement by means of provisions to deal with an undertaking that is not a competitor to a violence or threats, the role of the criminal prosecution authorities is cartel’s parties but plays an important role in it. The Draft AML proposes very limited in a cartel investigation in China. extending the scope of investigations and penalties for monopoly Under the AML, SAMR and PMRD conducts anti-trust investiga- agreements to include undertakings that organise or facilitate other tions against cartel arrangements and renders decisions independently, undertakings to reach cartel agreements. without relying on the People’s Court.

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New anti-trust guidelines IP Guidelines In June 2020, a book titled the Collection of Antitrust Regulations and The IP Guidelines provides a safe harbour for the following IP-related Guidelines 2019, authored by the Anti-Monopoly Bureau of SAMR, was horizontal agreements: published by China Industry and Commerce Press. This book officially • the cartel arrangements other than price-fixing, restricting produc- made public the following guidelines into anti-trust investigations: tion or sales volume, market or customer allocation, restricting • Antitrust Guidelines for the (the Auto Guidelines); R&D or new technology/products, and group boycotts; and • Leniency Guidelines; • the cartel’s combined market share does not exceed 20 per cent, • Guidelines on the Undertakings’ Commitments in Anti-trust Cases or there are at least four other competing technologies available (the Commitments Guidelines); and in the market. • Antitrust Guidelines for Intellectual Property Rights (IP Guidelines). Although the anti-trust guidelines were issued internally by the AMC Each of these guidelines introduced new cartel rules, which are detailed on 4 January 2019, they were not released to the public nor invoked in as follows. an anti-trust investigation. This was the first time important anti-trust guidelines were published in a book publication rather than official Auto Guidelines websites. The grounds for this unusual approach are not known. The Auto Guidelines is focused on vertical arrangements. They apply on After publishing these substantive guidelines in June, SAMR cartel issues when the following exemptions apply. provided grace periods to allow undertakings to adjust their practices. The Auto Guidelines identified the following five types of hori- zontal agreements that would generally improve the efficiency and Substantive law promote competition, and are conducive to increasing the benefits of 4 What is the substantive law on cartels in the jurisdiction? the consumers. These agreements are likely to be exempted from the application of the cartel rules under the AML: The AML and the Interim Provisions on the Prohibition of Monopoly • research & development agreements; Agreements prohibit: • agreements on specialisation; • price-fixing; • technology standardisation agreements; • restricting production or sales volume, market or customer • joint production agreements; and allocation, research and development or new technologies, or • joint purchasing agreements. products; and • group boycotts. The Auto Guidelines provide that: Price-fixing [For] instance, the horizontal agreements during the R&D and Price-fixing is an agreement, either written, verbal or inferred from production processes of the new energy automobile may enable conduct, among competitors that increases, lowers or stabilises prices the undertakings to share the investment risks, improve the effi- or competitive terms. ciency and promote social public interests. Price-fixing can be achieved directly by setting the price level, range, or discount. It can also be achieved indirectly by setting the Leniency Guidelines profit, fees and expenses or a standard formula for calculating prices. The key elements of the Leniency Guidelines are: The nature of the price-fixing is to limit the discretion of the parties • a leniency application should be followed with a report and mate- on pricing, rather than allowing the price to be determined naturally rial evidence meeting criteria specified in the Leniency Guidelines; through free-market forces. • a marker system allows a first-in undertaking to hold its place for 30 days (extendable to 60 days in exceptional circumstances) Market or customer allocation in order to provide supplementary material evidence required by Market or customer allocation is an agreement among competitors to SAMR or PMRD; and divide sales territories or assign customers. In practice, the market • the following mitigations are applied to the sanctions of successful allocation can be further divided as geographic market allocation, leniency applicants: product-market allocation and market share allocation. • the first-in may receive immunity or a reduction in its fine of • geographic market allocation – undertakings assign exclusive at least 80 per cent; territories for each cartel member (online and offline markets • the second-in may receive a 30 per cent to 50 per cent reduc- could also be so allocated); tion in its fine; • product market allocation – undertakings allocate the exclusive • the third-in may receive a 20 per cent to 30 per cent reduction rights on certain categories, volume and timing of sales of products in its fine; and to each cartel member; • subsequent applicants may receive no more than a 20 per • market share allocation – undertakings’ similar products compete cent reduction in their fines. in the same territory, however, when one cartel member reaches an agreed market share, sales target, sales revenue or sales profit, Commitments Guidelines it restricts its sales activities and ceases to compete; and According to the Commitments Guidelines, the following forms of • customer allocation – customers are allocated among the under- anti-trust agreements cannot be settled by commitments from under- takings, so an undertaking will not sell their products or services takings: price-fixing, restricting production or sales volume, and market to customers allocated to another cartel member. or customer allocation. In addition, if SAMR or PMRD identifies and verifies the cartel agreement after an investigation, it will no longer accept proposed Group boycott is an agreement among competing undertakings not to commitments and it will not settle the investigation. do business with a targeted undertaking. This arrangement could target the customers in the downstream market by jointly refusing to supply or www.lexology.com/gtdt 75 © Law Business Research 2020 China DeHeng Law Offices

sell products or target the suppliers in the upstream market by jointly concerning the Application of Law in the Civil Disputes Arising from refusing to purchase products. According to the Interim Provisions on Monopoly Conduct of 2012 (the Antitrust Judicial Interpretation), the the Prohibition of Monopoly Agreements, jointly restricting a specific anti-competitive effects of price-fixing, restricting production or sales undertaking from trading with undertakings which are in competition volume, market or customer allocation, restricting R&D or new tech- with them can also be determined as a group boycott. nology or products, and group boycotts are presumed. An undertaking under investigation shall bear the burden of proof to fulfil the exemption Output agreement requirements. An output agreement is an agreement among competing undertakings In addition, according to the Commitments Guidelines, price-fixing, to prevent, restrict or limit the volume or type of particular products restricting production or sales volume, and market or customer alloca- or services available in the market. The goal of such a cartel agree- tion cannot be settled by commitments from an undertaking. Therefore ment can be achieved at either the production stage or the distribution it will be harder for an undertaking under investigation to apply for leni- stage. At the production stage, the competing undertakings will restrict ency for cartel arrangements. or fix the production volume of particular products. At the distribution stage, the competing undertakings will restrict or fix the sales volume What level of knowledge or intention is required for a finding of of specific types or models of products. liability? In June 2020, the Standing Committee of the National People's Congress Bid rigging released the Draft amendment of the Administrative Penalty Law (the ‘Bid rigging’ is an agreement among competing undertakings as to who Draft Administrative Penalty Law) for public comments. Article 30 (3), will submit the winning bid when an original equipment manufacturer a newly drafted provision, of the Draft Administrative Penalty Law solicits proposals to purchase products or services. Though the AML provides that ‘If the party has evidence to prove that there is no subjec- does not expressly include bid rigging, it may be seen as a type of cartel tive fault, no administrative penalty shall be imposed.’ conduct. The competition authority in China investigates and fines bid The current Administrative Penalty Law is silent on whether the rigging-related conduct by applying article 13 AML in several high- subjective element should be considered in making an administrative profile cases, including the Auto Parts and Bearings case (2014) and the penalty decision. In judicial practice, the People’s Courts have different Auto Maritime Transportation case (2015). opinions on whether the subjective element constitutes one of the elements in the making of an administrative penalty decision. Restricting R&D or new technology or products In the appeal of Wang Xiaojun v Hejing County Public Security This is an agreement among undertakings to restrict innovation or Bureau, the People’s Court only considered conduct. It held that the restrict the purchasing or use of new technology and products in order plaintiff carried a forged driving license in his vehicle and that the Road to maintain the ability to restrain competition and stifle new challenges Traffic Safety Law does not require administrative agencies to identify to their hegemony. the subjective knowledge of the perpetrator when making administra- Innovation, whether in the form of improved product quality and tive penalties (in this case, whether he knew, should have known but did variety, or of production efficiency that allows lower prices, is a powerful not, or did not know the driving license was forged). engine to promote competition and enhance consumers’ welfare. New However, in the appeal of China Rail Finance Leasing Co, Ltd technology and products are the result of innovation. This cartel rule v Tianjin Branch of the State Administration of Foreign Exchange, under the AML is vitally important to preserve competition in innovation Beijing No. 1 Intermediate People’s Court held that the determination and ensure the best outcome for consumers. of a party’s illegal conduct should satisfy both objective and subjective requirements: there should be conduct that violates the administrative Information exchanges law, and there should be subjective fault. That is, if the illegal conduct Information exchange among undertakings is not presumptively illegal can be proved, and there is no contrary evidence that can rule out the in China, unless the cartel agreements, decisions or concerted practices subjective fault of the party, it should be presumed that the party is at can be found. Although information exchange may facilitate collusion, in subjective fault. most cases, an undertaking can gain insights on how to compete more According to the Draft Administrative Penalty Law, if the existence effectively through information exchange and can introduce more and of an illegal act can be proved, and the party has no contrary evidence better products and services based on the information obtained. to prove that its does not hold subjective fault, the party shall be presumed to have a subjective fault. Since the amendment is subject Concerted practices to public comments, the above provisions could be further amended in According to the AML, monopoly agreements are agreements, decisions the released version. or other concerted practices that eliminate or restrict competition. Finding concerted practices does not require the existence of any Joint ventures and strategic alliances written or oral agreements among the competitors, rather only: 5 To what extent are joint ventures and strategic alliances • uniformity of behaviour among competitors; potentially subject to the cartel laws? • opportunity for communication or exchange of information among competitors; Joint Ventures • that the uniformity cannot be reasonably explained other than as A joint venture can be established by either non-competitors or competi- the result of improper communication among competitors; and tors. A joint venture can also compete with its participating companies • the market structure, competition status, market changes and or operate in a separate market. If the participating companies and the other situations of the relevant markets may facilitate collusion. joint venture are actual or potential competitors, there is a risk of a carte being formed. Per se illegal v rule of reason Because cartel arrangements are subject to exemption rules under the Establishment of a joint venture by competitors AML, in general, cartel arrangements are not per se illegal. However, Although the AML looks sceptically upon agreements between competi- according to the Supreme Court’s Provisions on Several Issues tors, SAMR considers a joint venture as a new undertaking joining the

76 Cartel Regulation 2021 © Law Business Research 2020 DeHeng Law Offices China market and increasing competition, and that, in general, joint ventures but not yet marketed. However, non-compete clauses should not be set are pro-competitive behaviour, so it affords lenient treatment to the for products or services that are not operated by the joint venture. establishment of legitimate joint ventures. Joint ventures can take a number of different forms, such as: Restricted undertakings • the fully integrated joint venture – an integrated full line of busi- A non-compete clause may restrict the participating companies from nesses, including manufacturing, distribution, marketing and sales; competing with the joint venture, however, the parent companies cannot • the purchasing joint venture – enables the participating companies divide the market outside the joint venture’s products or services and to procure parts, raw materials and services etc from a common geographic scope. In addition, the non-compete clause can only restrict source in order at economic scale to increase their purchasing a participating company, its subsidiaries and commercial agents, but power to balance with market power; it cannot directly restrict distributors. The joint venture’s participating • the research joint venture – enables participating companies to companies can only achieve this goal through vertical agreements with increases innovation, reduce R&D costs, and so possibly create its distributors. better quality products; • the production joint venture – intergrates or creates a shared Competitors participating in a joint venture cannot use it as a production facility among the participating companies; and platform for collusion • the distribution joint venture – intergrates or creates a shared Information sharing between a participant and the joint venture itself distribution channel among the participating companies. is acceptable under the AML, as participants have to evaluate the joint venture’s performance and may need to provide support to it. Special attention must be paid to distribution joint ventures if the partic- However, there is a risk that competitors may use a joint venture ipating companies maintain their own brands and continue to compete they are party to as a platform to achieve collusion. The cartel rules in the market, and the only purpose of the joint venture is to coordi- under the AML clearly prohibit the fixing of prices or dividing markets nate distribution between the participants. Because of the structure of between competitors, either directly or indirectly through third parties a distribution joint venture, it is inevitable that competing participating such as joint ventures. companies will share sensitive information and there is a strong risk that they may fix prices of their goods or divide the distribution market Joint ventures cannot use participating companies as a platform between them. for collusion In general, the other forms of joint ventures established by In addition, if a participant has two or more competing joint ventures, competing companies are less likely to raise competition concern. For a firewall and a clean team should be established to prevent sensi- instance, a purchasing joint venture will lower costs and improve the tive information flowing between the competing joint ventures and a quality of parts, which may lead to the final product having a lower price parent company. but a higher quality, which will benefit the consumers, while a produc- tion joint venture may achieve economic scale, which lowers the cost of Strategic Alliances production and improves efficiency, which also good for consumers of Competing companies may coordinate through a strategic alli- the participants’ product. ance without establishing an entity (ie, forming a joint venture). The reasons for choosing a strategic alliance are that they are commer- No competition between a joint venture and its participating cial contracts, which are easier to unwind if they do not work out, and companies the relationship between the parties of a strategic alliance is simple In order to protect the commercial value and the effective operation of and flexible and does not require the level of work regarding tax, a joint venture after its formation, competing participating companies accounting, governance and other matters associated with the forma- often stipulate in the transaction agreement that they will not compete tion of a joint venture. with the joint venture for specified products in a geographical area for a However, the anti-trust risk of a strategic alliance agreement certain period of time. Such transaction terms are collectively referred should be considered. Anti-competition clauses are usually embedded to as a ‘non-compete clause’. in these agreements, but cartel issues may resurface when parties to A non-compete clause should be restricted within a proper scope a strategic alliance agreements agree on implementation agreements. to protect the joint venture’s commercial value and its effective opera- tion. Possible forms of restriction follow. APPLICATION OF THE LAW AND JURISDICTIONAL REACH

Duration Industry-specific provisions The term of the non-compete clause should not be too long. There are 6 Are there any industry-specific infringements? Are there any no guidelines for the duration of a non-compete clause, but more than industry-specific defences or antitrust exemptions? Is there a three years could attract attention. defence or exemption for government-sanctioned activity or regulated conduct? Geographic scope The geographical scope covered by the non-compete clause should be Article 56 of the AML provides a block exemption for alliances or other limited to the joint venture’s business scope. In the future, if it becomes concerted conduct by farmers and rural economic organisations in necessary to cover further areas than what the venture originally activities such as production, processing, sales, transportation and planned to enter, it is necessary to check whether a preliminary invest- storage of agricultural products. ment has been made. There are no explicit defences or exemptions for specific industries or government-sanctioned conduct. Product scope The NDRC issued the Guide to the Pricing Behaviour of Operators The non-compete clause is limited to the products and services that Dealing in Drugs and Active Pharmaceutical Ingredients in Short Supply constitute the operating activities of the joint venture but may include effective as of 16 November 2017 to regulate the market price behav- products in the advanced development stage or that are fully developed iours of drugs in short supply and active pharmaceutical ingredients www.lexology.com/gtdt 77 © Law Business Research 2020 China DeHeng Law Offices

(API). SAMR is drafting anti-trust guideline for the auto sector and plans this stage, local government authorities above the county level are to introduce guideline by 2020. These two provisions are industry- responsible for issuing organisation registration certificates to these specific cartel provisions introduced by authorities. organisations, which enables them to follow the relevant procedures for opening bank accounts with the relevant government departments in Application of the law order to carry out business operations and management. 7 Does the law apply to individuals, corporations and other entities? Active pharmaceutical ingredients The Guide to the Pricing Behavior of Undertakings Dealing in Drugs in Article 12 of the Anti-Monopoly Law of China (AML) defines an ‘under- Short Supply and Active Pharmaceutical Ingredients (the API Pricing taking’ as a natural person, a legal person or any other organisation that Guidelines) issued in November 2017 and the Antitrust Guideline in the engages in the production or operation of commodities or provisions field of Active Pharmaceutical Ingredients (draft for comments) (the of services. As a result, the law generally applies to both individuals Draft API Guidelines) issued in October 2020 regulate the cartel activi- and corporations. However, when an employee is involved in a cartel on ties related to active pharmaceutical ingredients (APIs). behalf of a corporation, only the corporation is liable as the corporation According to the API Pricing Guidelines, the AML prohibits any of is the undertaking in that situation. the following horizontal monopolistic price agreements by competing API undertakings: Extraterritoriality • fixing the price level or the range of price; 8 Does the regime apply to conduct that takes place outside the • fixing the tender price; jurisdiction (including indirect sales into the jurisdiction)? If • fixing agency fees, distribution fees, market discounts and other so, on what jurisdictional basis? expenses influencing the price; • fixing the benchmark price, profit rate, gross profit rate, etc for According to article 2 of the AML, the law is applicable to monopolistic transactions with any third party; conduct outside the territory of China that has the effect of eliminating • agreeing upon a standard formula to calculate the price of an API; or restricting competition within the domestic market of China. There • fixing the price by limiting the output or sales volume; have been a number of cartel cases, including the LCD Panel case (2013), • fixing the price by dividing the market; Auto Parts and Bearings case (2014), and Auto Maritime Transportation • fixing the price by restricting the purchasing of new technologies case (2015), where conduct outside China was found to be in violation or equipment, or restricting the development of new technologies of the AML. or products; To establish that conduct outside China has an anti-competitive • fixing the price by boycotting transactions; and effect in China the product under investigation must be imported into • fixing the price in any other disguised form. China, and there is a reasonable causal nexus between the alleged conduct and the anti-competitive effect in China. The Draft API Guidelines cover broader anti-trust issues, such as abusive of dominance, merger control and abuse of administrative Export cartels power related to the API. According to the Draft API Guidelines, in a 9 Is there an exemption or defence for conduct that only affects cartel investigation, SAMR or PMRD has the discretion to not define the customers or other parties outside the jurisdiction? relevant market; however, if an undertaking under cartel investigation wants to apply for an exemption under the AML, a market definition is Article 15(6) of the AML permits exemptions to be granted for monopoly required in order to prove that the market competition is not seriously agreements that are entered into for the purpose of protecting the legiti- restricted. mate interest of international trade and foreign economic cooperation. The Draft API Guidelines also states that the API, in general, consti- This provision has been included to permit export cartels. tute an independent market and may be further divided. This means that the API related anti-trust investigations are more likely to involve Industry-specific provisions abusive conduct, as it is very likely that API manufacturers and distribu- 10 Are there any industry-specific infringements? Are there any tors will be assumed, whether independently or jointly, to dominate the industry-specific defences or exemptions? API manufacturing or distribution markets. The significant cartel rules under the Draft API Guidelines are: Agriculture • Competing API manufacturers shall avoid reaching joint produc- Article 56 of the AML provides that the AML shall not apply to co-oper- tion agreements, joint purchase agreements, joint distribution ative or collaborative acts between agricultural producers and rural agreements and joint bidding agreements with competitors. This economic organisations in business activities such as the manufacturing, provision is strong signal that SAMR and PMRD take a harsher processing, sale, transportation and storage etc of agricultural prod- position on API-related cases, as joint production and joint ucts. This article is only applicable to agricultural producers and rural purchase agreements in the automotive industry are considered economic organisations; industrialised undertakings in the agricultural exempt under the AML. sector cannot enjoy this exemption. In addition, this article is only appli- • Competing API manufacturers shall avoid sharing sensitive cable to cartel activities, abusive conduct and resale price maintenance information through third parties (such as API distributors or phar- (RPM) can still be caught under the AML. For instance, article 56 makes maceutical manufacturers). This is the first time that a sharing the price-fixing conduct of farmers in several villages agreeing to raise the information rule is specifically addressed in anti-trust guidelines. prices of crops, meat, milk or eggs at the same time exempt from the AML. ‘Agricultural producers’ refers to undertakings and individuals The Draft API Guidelines is subject to further revision. No matter how operating in agricultural crop cultivation, forestry, animal husbandry or this document will be revised, as stated in article 20 of the Draft API fisheries in agricultural land and separate facilities. Guidelines, SMAR and PMRD will strictly and severely investigate anti- A ‘rural economic organisation’ are special economic organisa- trust acts related to API. tions that are the main form of rural collective asset management. At

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Automobiles INVESTIGATIONS According to article 5(1) of the Anti-trust Guidelines for the Automotive Industry (the Auto Guidelines) issued by the Anti-monopoly Committee Steps in an investigation of the State Council (AMC) in 2019 (published in June 2020): 12 What are the typical steps in an investigation?

[Certain] types of horizontal agreements, for instance, research A cartel investigation usually is started by a whistle-blower or a cartel & development agreements, agreements on specialisation, tech- member applying for leniency. The State Administration for Market nology standardisation agreements, joint production agreements Regulation (SAMR) or a local Provincial Market Regulatory Department and joint purchase agreements, would generally improve the effi- (PMRD) may also initiate an investigation if it has reason to believe there ciency and promote competition and are conducive to increasing has been a cartel infringement. the benefits of the consumers. For instance, the horizontal agree- ments during the R&D and production processes of a new energy Pre-investigation automobile may enable the undertakings to share the investment At this stage, SAMR or PMRD will conduct an external investigation to risks, improve the efficiency and promote social public interests. understand the background and verify the evidence obtained to deter- Hence, undertakings in the automotive industry that reach the mine whether to formally initiate an anti-trust investigation. The PMRD aforesaid horizontal agreements that can improve efficiency and may communicate with SAMR before initiating the investigation. promote competition may prove that the provisions of article 13 of the AML do not apply to their agreements pursuant to article Initiation of an investigation 15 of the AML. SAMR or PMRD may initiate an anti-trust investigation at their own discretion if one believes there is a good case to pursue. A PMRD shall, The Auto Guidelines reshape the rules on vertical monopoly agree- within seven working days after the initiation of an anti-trust investiga- ments in China, and its impact extends beyond the automotive industry. tion, report the case to SAMR for its records. No notice of investigation can be obtained by the entity under investigation. Government-approved conduct 11 Is there a defence or exemption for state actions, Leniency applications government-approved activity or regulated conduct? An undertaking under investigation may file a leniency application to SAMR or a PMRD. SAMR or the PMRD shall decide whether to give a State actions and government-approved activity are not mitigated penalty or exempt the undertaking from a penalty by consid- justifications for the cartel under the AML ering factors including the time sequence of the voluntary reporting by According to the AML and the Interim Provisions on Prohibiting Acts of the undertaking, the degree of importance of the evidence provided, and Abuse of Administrative Authority to Eliminate or Restrict Competition the relevant information on the conclusion or implementation of the (Abuse of Administratie Authority Provision), administrative authorities monopoly agreement concerned. shall not abuse their administrative authority to compel or compel in a disguised form undertakings to engage in the monopolistic practices Fact-finding and dawn raids in violation of the AML. In addition, the Opinions on Establishing a Fair SAMR and PMRDs have broad investigative powers and, during the Competition Review System During the Development of Market-oriented fact-finding stage, SAMR or PMRD may carry out a dawn raid on the Systems (FCR Opinions) was issued in 2016. The purpose of the Fair undertaking under investigation by conducting an on-site inspection Competition Review System (FCRS) is to prevent policy-making bodies to collect and fix evidence, conducting interrogations and request the from issuing measures that eliminate or restrict competition and to undertaking to provide documents. gradually abolish regulations and practices that hinder the creation of a Undertakings which are under investigation and interested parties unified market and fair competition. According to the FCR Opinions, the have the right to voice their views. SAMR or PMRD shall verify the facts, administrative authority cannot force the undertakings to engage in the reasons and evidence presented by undertakings under investigation or monopolistic practices in violation of the AML, and cannot set govern- interested parties. ment pricing exceeding the pricing authorities. Therefore, according to SAMR or PMRD will ask undertakings under investigation to submit the above provisions and opinions, the cartels endorsed under the state documents or provide explanations for certain conduct. The fact-finding actions or approved by the government are not exempted from the AML. process may last for several months, even years, and the scope of the investigation may be upstream, downstream or involve competitors of Government-guided prices or government-set prices are the undertaking under investigation. permitted in China with narrow application In general, the administrative authorities shall not misuse their authority Decisions on cancellation, suspension, resumption or termination by drafting regulations containing provisions that eliminate or restrict of an investigation competition. The investigation can be cancelled if no violation can be found. The However, government-guided prices and government-set prices are investigation can be suspended if the undertaking which submits an permitted under the Price Law and the Rules for the Pricing Activities of application agrees to undertake certain specific measures that will lead the Government (issued in August 2017). About 3 per cent of the prices to the elimination of the effect of suspicious practices within a time limit in China are government-guided prices or government-set prices. The designated by SAMR. If such measures are properly implemented in price related to important public utilities, public welfare services, and the agreed period of time, SAMR may terminate the investigation. The goods and services operated under the will be based investigation could be resumed if the measures are not implemented on the pricing catalogue drafted by the central or a local government. as promised. Undertakings follow the government-guided prices or government-set prices are not caught under the AML. Expert argumentation meeting There is an Expert Committee under the Anti-monopoly Commission of the State Council. Seventeen experts in the Expert Committee can be www.lexology.com/gtdt 79 © Law Business Research 2020 China DeHeng Law Offices

called on by SAMR to attend an expert argumentation meeting to give INTERNATIONAL COOPERATION an expert opinion on the findings and preliminary decisions of SAMR. Inter-agency cooperation Oral notice for the finding of the case 14 Is there cooperation with authorities in other jurisdictions? If After the expert argumentation meeting, SAMR will release its findings so, what is the legal basis for, and extent of, such cooperation? and its preliminary decision to the undertaking under investigation orally. The oral notice may include the proposed fine base and the The State Administration for Market Regulation (SAMR) has pursued proposed rate of fine. The undertaking can provide SAMR with a state- bilateral cooperation with their counterparts in other jurisdictions. ment or argument to challenge the facts and the law’s application. Since the enactment of the Anti-Monopoly Law of China (AML) in 2008, it has entered into at least 55 cooperation agreements or memoranda of Prior notice for administrative penalties understanding (MoUs) with competition authorities in 28 countries and After communication between SAMR and the undertaking under investi- regions, including the United States, the European Union, Japan, Korea gation, SAMR will issue the Prior Notice for the Administrative Penalty. and Australia. This is a notice in written form stating the facts, the violation found, the In July 2011, the National Development and Reform Commission fine base and the rate of fine. It will state the right for the undertaking to (NDRC), the Ministry of Commerce (MOFCOM) and the State Administration make a statement, an argument or apply for a hearing. The undertaking for Industry and Commerce (SAIC) signed an anti-trust MoU with the US under investigation may challenge the decision, the fine base and the Federal Trade Commission and Department of Justice to foster coopera- rate of fine to reduce the penalty. tion in the enforcement of their competition laws and policies. In September 2012, the NDRC, the SAIC and the Directorate-General Final decision on administrative penalties Competition of the EU signed an MoU, which created a dedicated After the undertaking under investigation provides the statement, argu- framework to strengthen cooperation and coordination between DG ment or attends the hearing, SAMR will issue the final decision on the Competition and China authority concerning legislation, enforcement administrative penalty. The wording of the decision could be negotiated and technical cooperation regarding cartels, other restrictive agree- if it contains trade secrets. ments and abuse of dominant market positions. In May 2019, SAMR concluded an MoU with the Japan Fair Trade Publication Commission, which provides that the authorities will provide information A decision on the administrate penalty or a decision on suspending to each other on individual cases that both investigate or review. terminating an investigation will be released to the public through In May 2012, NDRC and the Korea Fair Trade Commission signed SAMR’s website. an MoU to cooperate in work related to international cartels, abuses of dominance, abuses of intellectual property and cross-border violations Administrative review or administrative lawsuit of South Korea’s Monopoly Regulation and Fair Trade Act. If the undertaking does not accept a decision made by SAMR, it may In November 2015, NDRC and the Australian Competition and apply for administrative review or file an administrative lawsuit. Consumer Commission signed an MoU to allow the agencies to take There is no statutory timeline for a cartel investigation. In practice, coordinated action in response to anti-competitive conduct, including the time spent on an investigation varies depending on the complexity of through the exchange of information and evidence. the case, SAMR’s internal priorities, the cooperation of the undertakings In terms of multilateral cooperation, China is not a member of the under investigation, etc. International Competition Network (ICN) or the OECD. However, consoli- dation of China’s three anti-trust agencies will smooth communication Investigative powers of the authorities and coordination between SAMR and ICN and the OECD. As a member 13 What investigative powers do the authorities have? Is court state of the United Nations, China is involved in some of the work of the approval required to invoke these powers? competition group of the UN Conference on Trade and Development.

Article 39 of the Anti-Monopoly Law of China (AML) grants SAMR and Interplay between jurisdictions PMRDs broad investigative powers, including the ability to: 15 Which jurisdictions have significant interplay with your • conduct on-premise inspections of the place of business of the jurisdiction in cross-border cases? If so, how does this affect investigated undertaking or other relevant places; the investigation, prosecution and penalising of cartel activity • question the investigated undertaking, interested parties, and in cross-border cases in your jurisdiction? other relevant entities and individuals, requiring them to provide relevant information; Despite the bilateral cooperation and communication between SAMR • examine or copy relevant documents and information including and anti-trust enforcement agencies in other jurisdictions, inter-­ related documentation, contracts, accounting books, business jurisdictional cooperation remains high level, and so far there is no clear mails, and electronic data, etc, of the investigated undertaking, indication of working-level coordination between jurisdictions in specific interested parties, and other relevant entities or individuals; investigations. • seal up and detain relevant evidence; and • enquire about the bank accounts of the undertakings. CARTEL PROCEEDINGS

SAMR and PMRDs do not need to obtain court orders for searches, Decisions seizures, and other investigative actions. In practice, before any meas- 16 How is a cartel proceeding adjudicated or determined? ures authorised by article 39 may be taken, a written report shall be submitted to the leadership of SAMR or the PMRD for approval. After State Administration for Market Regulation (SAMR) or a Provincial Market Regulatory Department (PMRD) establishes a finding of a monopoly agreement, it will issue a formal penalty decision and a public announcement. Usually, SAMR or PMRD is obliged to issue a ‘prior

80 Cartel Regulation 2021 © Law Business Research 2020 DeHeng Law Offices China notice for administrative penalties’ to the investigated parties before relevant facts are comparatively highly probable, the People’s Court issuing the formal penalty decision. The investigated undertaking may may deem that the facts are existent. (See article 86 of the Several request a formal hearing or otherwise submit a written representation Provisions of the Supreme People's Court on Evidence for Civil Actions.) or defence, but often has only a few days to do so. There is no mandatory time limit between the issuance of the prior notice for administrative Circumstantial evidence penalties and the formal decision, and SAMR or PMRD has the discre- 18 Can an infringement be established by using circumstantial tion to set this period. evidence without direct evidence of the actual agreement? The hearing and written submission provide investigated parties with an opportunity to challenge the to-be-issued formal penalty deci- Circumstantial evidence is acceptable. In particular, concerted practices, sion before resorting to the appeal process. If the defence is accepted by which are considered a form of cartel agreement, may be established SAMR or the PMRD, no penalty will be imposed. by the finding of an exchange of information (or even the opportunity for such an exchange) and subsequent parallel competitive behaviours. Burden of proof 17 Which party has the burden of proof? What is the level of Appeal process proof required? 19 What is the appeal process?

In public enforcement, SAMR or the PMRD bears the burden to prove There are two routes available to an undertaking to challenge an admin- the existence of a cartel. Once SAMR or PMRD has proved the existence istrative penalty decision of SAMR or a PMRD after the formal penalty of a cartel, it is hard for the parties to rebut the presumption of anti- decision has been made: an administrative review and administrative competitive effects. litigation. As to cartel-related private actions, the general rule is a litigant After a formal penalty decision is made, the undertaking has 15 must provide evidence to prove the facts on which its claims are based days to pay any penalties. Applying for an administrative review or filing or the facts on which its rebuttal of the counterparty’s claims are an administrative suit with a court does not suspend the payment of based, except otherwise stipulated by the law. Prior to the making of penalties. a judgment, where a litigant is unable to provide evidence or adequate evidence to prove its assertions, the litigant who has the burden of proof Administrative review bears the adverse consequences. The competent authorities In anti-trust litigation, if the alleged monopolistic conduct is Administrative review is a procedure that generally applies to penal- an entry into a horizontal agreement of price-fixing, division of the ties imposed by administrative agencies. For the penalty decision made market, a restriction on output, a restriction on research and devel- by SAMR, the application for administrative review shall be submitted opment or a joint boycott, the defendant has the burden to prove that to SAMR. Decisions made by PMRD can be challenged either at the those agreements do not have the effects of eliminating or restricting provincial government level or with SAMR, subject to the applicant’s the competition. If the alleged monopolistic conduct is entering into a discretion. of resale price maintenance, the plaintiff has the burden to prove the resale price maintenance and the effects of elimi- Who may file an application for an administrative review？ nating or restricting the competition. The undertaking under investigation that is subject to a penalty imposed At present, a high degree of probability is the standard of proof by SAMR or a PMRD (the administrative counterpart), or undertakings that is applicable. Beyond reasonable doubt and a comparatively high which have an interest in a specific administrative decision of SAMR or a degree of probability are supplementary standards of proof. PMRD may file an application for administrative review to the competent authority. High degree of probability Foreign nationals, stateless persons and foreign organisations may Article 108 of the Judicial Interpretation of the Civil Procedural Law also file such an application. provides the foundation of the general standard of proof of ‘high degree of probability’: The standard of review The review is, in principle, limited to on-paper review, with the possi- . . . for evidence provided by a litigant who has the burden of bility of a hearing or consultation upon request by the applicant or the proof, where the People’s Court, upon examination and taking into discretion of the reviewing agency. After the administrative review, the account the relevant facts, confirms that it is highly probable that administrative decisions can be nullified, changed or confirmed to be the facts sought to be proved exist, the People’s Court shall deem illegal, if: that the facts exist. • the main facts are unclear and the material evidence is inadequate; • the application of the law is incorrect; Beyond a reasonable doubt • the statutory procedures have been violated; For evidence provided by litigation to prove the facts of fraud, duress or • the power of authority has been exceeded or abused; or malicious collusion, or to prove the facts of a verbal will or gift, where • the administrative decision is obviously inappropriate. the People’s Court concludes that the possibility of the existence of the facts sought to be proved is beyond a reasonable doubt, the People’s Process and timing Court will deem that the facts exist. (See article 86 of the Several The undertaking must apply for administrative review within 60 days of Provisions of the Supreme People's Court on Evidence for Civil Actions.) receipt of the formal decision. The agency has 60 days from accepting an application to make a decision, which can be extended by up to 30 Comparatively high degree of probability days upon approval. For the facts relating to procedural matters, such as litigation preser- The applicant may file for administrative litigation if it is unsatisfied vation or abstention, where the People’s Court takes into account the with the decision of the administrative review. litigant’s statement and the relevant evidence to conclude that the www.lexology.com/gtdt 81 © Law Business Research 2020 China DeHeng Law Offices

Administrative litigation lower the bid price. In 1999, the Bidding Law provided that bidders shall The c administrative lawsuit not collude with each other in bid quotations, and shall not crowd out An undertaking can challenge a SAMR or PMRD penalty decision via an other bidders to damage the lawful rights and interests of the tenderer administrative lawsuit in a court. For the decision issued by a PMRD, the or other bidders. The bid-rigging criminal offence was introduced in the undertaking can bring an administrative lawsuit directly to the Basic or Criminal Law in 1997. All the above legislations are earlier than the AML Intermediate People’s Courts where the PMRD is located. For decisions in 2008, and the Bid rigging crime is not a part of the AML. issued by SAMR, the undertaking can bring an administrative lawsuit According to statistics, about 75 per cent of bid-rigging is found in directly to the First Intermediate People’s Court of Beijing. the construction industry. The longest sentence for bid-rigging is two years and six months where the offender paid a ‘reasonable benefit’ Who has the right to file an administrative lawsuit? to other bidders and asked them not to compete genuinely and let the An administrative counterpart or any citizen, legal person or other offender win the bid. organisation who or which has interests in a specific administrative decision of SAMR or PMRD has the right to initiate an administrative Obstructing law enforcement by means of violence or threat lawsuit. The ‘interests’ could be: According to the Criminal Law, whoever obstructs a functionary of a • the decision of SAMR or PMRD involves its right to fair competition; state organ from carrying out its functions according to law by means • the revocation or change of the decision of SAMR or PMRD involves of violence or threat shall be sentenced to fixed-term imprisonment of its lawful rights and interests; or not more than three years, criminal detention, public surveillance or be • the undertaking has made a complaint to SAMR or PMRD, and it fined. (Criminal detention shall be not less than one month but not more has not handled the case. than six months and is carried out by the public security organ in the vicinity the obstruction occurred in. During the period of detention, the The standard of review criminal may return for one to two days each month.) In an administrative lawsuit, the People’s Court will look at the facts The longest sentence for obstructing law enforcement by means of and the application of the law. The People’s Court may make a ruling violence or threat is one year and six months. to nullify or partially nullify the administrative decision, or rule that the defendant make a new administrative decision, in the following cases: Civil and administrative sanctions • inadequacy of material evidence; 21 What civil or administrative sanctions are there for cartel • erroneous application of the law or regulations; activity? • violation of legal procedure; • exceeding authority; SAMR or a PMRD may impose the following penalties against cartel • abuse of powers; and arrangement according to the AML: • obvious unfairness. • order the illegal act to cease; • confiscate illegal income; and The process and timing • order the undertaking to pay a fine of 1 per cent to 10 per cent of its The undertaking must file the administrative suit within six months sales volume for the preceding year. of receipt of the formal penalty decision. Administrative lawsuits are usually accepted at the time of filing if formalities are complete; if not, the In practice, ‘preceding year’ refers to the fiscal year before an investiga- court will provide a time limit for the plaintiff to supplement the formali- tion is launched. A fiscal year spans from 1 January to 31 December ties. The court must make its first instance decision within six months based on the Gregorian calendar. Where an undertaking adopts a of acceptance of the case. This period can be extended upon approval. different fiscal year system, adjustments shall be made accordingly. From 2019, the Intellectual Property Tribunal of the Supreme Where a monopoly agreement has been entered into but has People’s Court can bypass the Higher People’s Courts and directly hear not been implemented, a fine of not more than 500,000 yuan may appeals against the rulings and judgments of first-instance civil and be imposed. administrative monopoly cases made by the Intellectual Property Courts Where an industry association has violated the provisions of and the Intermediate People’s Courts. This is called a ‘leapfrog’ appeal. the AML in organising the undertakings in the industry to enter into a monopoly agreement, SAMR or a PMRD may impose a fine of not SANCTIONS more than 500,000 yuan; where the case is serious, the registration and administrative authorities for social organisations may de-register the Criminal sanctions industry association pursuant to the law. 20 What, if any, criminal sanctions are there for cartel activity? In recent years, enforcement against cartels has increased, with increasingly higher penalties imposed on the cartel members and any Except for bid rigging or obstructing law enforcement by means of industry association organising the cartel activities. violence or threat, cartel behaviour is generally not a criminal viola- The highest fines against cartel conduct to date were made in tion in China. the 2014 penalty decision against 12 Japanese auto parts and bearing companies. Eight auto parts manufacturers were imposed fines total- Bid rigging ling 831.96 million yuan (Hitachi was exempted from this penalty) and According to the Criminal Law, bidders who act in collusion with each four bearing manufacturers were imposed fines totalling 403.44 million other in offering bidding prices, jeopardising the interests of bid inviters yuan (Nachi-Fujikoshi was exempted from this penalty). The combined and other bidders, shall, if the circumstances are serious, be sentenced amount of the fines reaches 1.24 billion yuan, representing 4 per cent to to fixed-term imprisonment of not more than three years or criminal 8 per cent of the penalised companies’ annual turnovers. detention and may also be fined. In a 2017 penalty decision against 23 electricity companies and the A crime of ‘bid-rigging’ crime is not a concept that originated in electricity industrial association in Shanxi Province, the industrial asso- the AML. In 1993, the Anti-Unfair Competition Law first touched on this ciation organising the price-fixing agreement was fined 500,000 yuan, issue, providing that bidders shall not collude in bidding to raise or the maximum fine available for industrial association under the AML.

82 Cartel Regulation 2021 © Law Business Research 2020 DeHeng Law Offices China

In terms of civil sanctions, a plaintiff can file a civil lawsuit seeking • +0.5 per cent for a period of up to six months, beyond the compensation for damages caused by the alleged cartel activities. In first year; addition, the party losing the litigation generally bears the litigation fees • +1 per cent for each full year, or a period of between six to 12 charged by the court; upon the plaintiff’s request, the court may also months, beyond the first year; incorporate plaintiff’s reasonable costs for investigation and prevention • +0.5 per cent for continuing monopolistic conduct after being of the cartel activity into the amount of damages. ordered to cease by SAMR or a PMRD; and • +0.5 per cent for other aggravating circumstances not listed above. Guidelines for sanction levels 22 Do fining or sentencing principles or guidelines exist? If yes, The following mitigating circumstances cause the following adjust- are they binding on the adjudicator? If no, how are penalty ments to be applied: levels normally established? What are the main aggravating • -1 per cent: being coerced to implement the monopolistic conduct and mitigating factors that are considered? by other undertakings; • -1 per cent: being forced or coerced to implement the monopolistic To determine the specific amount of a fine, SAMR shall consider factors conduct by administrative authorities; such as the nature, extent and duration of the cartel. • -1 per cent: cooperating with an anti-monopoly enforcement agency and showing meritorious performance; Step 1: Determining the base fine • -1 per cent: taking the initiative to eliminate the harm and conse- The fine will be imposed on the basis of the preceding year’s sales quences of illegal activities; revenue. In practice, ‘preceeding year’ refers to the fiscal year before • -0.5 per cent: taking the initiative to mitigate the harm and conse- an investigation is launched. A fiscal year spans from 1 January to 31 quences of illegal activities; December based on the Gregorian calendar. Where an undertaking • -0.5 per cent: voluntarily providing relevant evidence of other adopts a different fiscal year system, adjustments shall be made undertakings’ violations of the AML; and accordingly. • -0.5 per cent: other mitigating circumstances. The scope of the fine may be narrowed to the relevant products under the investigation and the geographical area covered by the cartel. Compliance programmes If the geographical area concerned is beyond the territory of China, 23 Are sanctions reduced if the organisation had a compliance SAMR generally takes the China-wide domestic sales revenue as the programme in place at the time of the infringement? basis for calculating fines. However, since it was established, SAMR has used the total sales revenue of the undertaking under investigation as The AML and the Antitrust Compliance Guidelines for Undertakings the base to impose a fine, in order to increase deterrence and unify the issued by the Anti-monopoly Commission in September 2020 are standard of antitrust enforcement. silent on whether the existence of a compliance programme affects The undertaking subject to the fine could be narrowed down to the the level of the fine. Based on the past practice of SAMR and PMRDs, undertaking which directly implements the cartel. However, SAMR may the mere existence of a compliance programme is not recognised as a impose fines on a parent company, provided that the parent company factor affecting the level of a fine. In the view of SAMR and PMRDs, if can exercise decisive influence over the undertaking that has engaged the compliance programme is effective, there should be no suspicious in the cartel. cartel activities at all. Establishing or strengthening anti-trust compliance programme Step 2: To determine the fine rate going forward, even after SAMR or PMRD initiate an investigation, is In general, the initial fine rate against cartel agreements will be 2 per more helpful as this shows that the parties are willing to cooperate and cent or 3 per cent according to the Draft Guidelines on the Determination take the authority’s concerns seriously. of Illegal Gains and Fines in Relation to undertakings’ Monopolistic Conduct (the Draft Guidelines on Fines). The Draft Guidelines on Fines Director disqualification has not yet been enacted, but it reflects the practice of the authority 24 Are individuals involved in cartel activity subject to orders and can be used as a helpful reference. For price fixing, limiting the prohibiting them from serving as corporate directors or output or sales, or dividing the market, the initial fine rate is 3 per officers? cent, because such a cartel agreement usually aims at eliminating or restricting competition with the most severe harm to competition, and There are no relevant laws or regulations prohibiting individuals from can hardly promote competition, or benefit consumers. For the restric- serving as director, supervisor or senior officer of a company due to tion on R&D, group boycotts and other cartel agreements, the initial fine conducting a cartel. rate is 2 per cent. The Antitrust Compliance Guidelines for Undertakings encourages undertakings to: Step 3: Adjust the fine rate according to aggravating or mitigating • establish and improve anti-monopoly compliance assessments and circumstances reward and punishment mechanisms for employees; SAMR has full discretion to adjust the initial fine rate by considering the • make anti-monopoly compliance assessments results important following aggravating and mitigating circumstances: bases for employee and department performance assessments; and • +1 per cent for playing a leading role in monopolistic conduct, • punish violations and improve incentives for employee compliance coercing other undertakings to implement the monopolistic with relevant provisions of the AML. conduct, or preventing other undertakings from discontinuing the monopolistic conduct; However, the Antitrust Compliance Guidelines for Undertakings is not a • +1 per cent for committing multiple examples of monopolistic law and is not mandatory. conduct in the same case or having violated the AML in the past; • a maximum of +10 per cent for monopolistic conduct that continues beyond one year, calculated as follows: www.lexology.com/gtdt 83 © Law Business Research 2020 China DeHeng Law Offices

Debarment indirect purchaser, had the right to bring anti-trust litigation in court. In 25 Is debarment from government procurement procedures the appeal, the Beijing Higher People’s Court rejected the jurisdictional automatic, available as a discretionary sanction, or not challenge filed by Abbott and Carrefour. available in response to cartel infringements? According to the general rules relating to the burden of proof, if the plaintiff is an indirect purchaser challenging price-fixing, it has the The AML and its relevant regulations do not provide for debarment burden to prove that a horizontal agreement has been reached by the as a form of penalty against anti-competitive conduct, including cartel defendant and its competitors and that the direct purchaser has passed infringements. However, article 53 of the Bidding Law provides for on the damages caused by higher pricing to the indirect purchaser. debarment for bid-rigging. Specifically, for severe bid-rigging violations, The defendant (direct purchaser) then has the burden to prove that the the bidder shall be disqualified for one to two years from taking part in passing on has not occurred, and it bears the cost. bidding for projects for which a bid invitation is required by law. If the plaintiff is a direct purchaser challenging price-fixing, it has the burden to prove a horizontal price-fixing agreement. The defendant Parallel proceedings (supplier) then has the burden to prove that passing on has occurred, 26 Where possible sanctions for cartel activity include criminal and the direct purchaser does not suffer any losses. and civil or administrative penalties, can they be pursued In practice, it is unlikely undertakings that purchased an affected in respect of the same conduct? If not, when and how is the product from non-cartel members would bring claims against cartel choice of which sanction to pursue made? members based on alleged parallel increases in the prices they paid, as it would be much easier to purchase a product from cartel members to The administrative penalty imposed by SAMR or a PMRD does not have the standing to sue. preclude private civil litigation against the same conduct. Both ‘stand- In theory, umbrella purchaser claims are possible in an oligopo- alone’ actions and ‘follow-on’ actions after the decision of SAMR or listic market, if the plaintiff can prove: PMRD are permitted. • the existence of a cartel; Tian Junwei v Carrefour and Abbott (2016) was a follow-on private • the product purchased from non-cartel members is a competing litigation of an NDRC penalty decision against baby formula manufac- product (in order to do so the market definition is inevitable); and turers for resale price maintenance. The suit was dismissed since court • the product purchased from non-cartel members is affected by the considered that the penalty decision submitted by plaintiff Tian Junwei cartel arrangement, such as being subject to a price increase at the could not prove that there is a monopoly agreement between Carrefour same level as cartel members. Shuangjing Store and Abbott. More specifically, the decision of an administrative penalty issued by NDRC only proved that Abbott and its In a competitive market, such an umbrella purchaser claim has almost downstream undertakings had a fixed vertical monopoly agreement on no chance to win. the price of milk powder when reselling milk powder to a third party, but Double or treble damages, or other kinds of punitive damages, are it was not clear who was the other party of the vertical monopoly agree- not available under the AML. According to the Anti-Monopoly Judicial ment, therefore, it was unreasonable to directly conclude that Carrefour Interpretation, upon a request from the plaintiff, the court may consider Shuangjing Store and Abbott had a vertical monopoly agreement. the plaintiff’s reasonable costs for investigation and prevention of the This case demonstrates the possibility of parallel proceedings and monopoly conduct when deciding the amount of damages. a de novo review by the court. Class actions PRIVATE RIGHTS OF ACTION 28 Are class actions possible? If so, what is the process for such cases? If not, what is the scope for representative or group Private damage claims actions and what is the process for such cases? 27 Are private damage claims available for direct and indirect purchasers? Do purchasers that acquired the affected China does not have class actions but it does have representative claims. product from non-cartel members also have the ability to Pursuant to the Civil Procedure Law, a joint lawsuit (in which there are bring claims based on alleged parallel increases in the numerous plaintiffs) may be brought by representatives selected by and prices they paid (‘umbrella purchaser claims’)? What level of from the group of plaintiffs. damages and cost awards can be recovered? In the case of a joint action where there more than 10 persons comprising one party to the lawsuit, the litigants may elect a repre- Private damage claims are available for indirect purchasers sentative to participate in the proceedings. The litigation actions of the Neither the Anti-Monopoly Law of China (AML) nor the Anti-Monopoly representative will be binding upon the litigants that he or she repre- Judicial Interpretation distinguishes between direct purchasers and sents. For changes of representative, waivers of the claims of the action indirect purchasers. Indirect purchasers are allowed to file antitrust or confirmation of the claims of the counterparty litigants or settlement, civil actions with courts as no laws or precedents have prohibited this. consent by the litigants he or she represents is required. Pursuant to the Civil Procedure Law, the plaintiff should have a If multiple litigants cannot be confirmed at the time of the filing of direct interest in the case to have standing to file a lawsuit. An indi- the lawsuit, the relevant People’s Court may issue a public announce- rect purchaser who suffers losses from cartel arrangement may file a ment, stating the facts of the case and the claims, and notify the rights lawsuit under the AML. holders to register with the People’s Court within a stipulated period. In Tian Junwei v Carrefour and Abbott (2016), Tian Junwei, a consumer or indirect purchaser, who purchased a tin of Abbott’s infant formula at a Carrefour supermarket in Shuangjing Beijing filed a lawsuit against Carrefour Shuangjing Store and Abbott Shanghai for the resale price maintenance imposed by Abbott upon Carrefour Shuangjing Store (the direct purchaser). The plaintiff was challenged that he did not have the standing to file the lawsuit. The court held that Junwei Tian, as an

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COOPERATING PARTIES • whether the undertaking has applied for leniency from other over- seas law enforcement agencies; and Immunity • other relevant documents and materials. 29 Is there an immunity programme? If so, what are the basic elements of the programme? What is the importance of being ‘Material evidence’ refers to evidence which plays a critical role in the ‘first in’ to cooperate? launch of an antitrust investigation or the determination of a monopoly agreement by SAMR or PMRD, including: An immunity programme that provides full leniency or amnesty is avail- • for the first-in: able under the Anti-Monopoly Law of China (AML). State Administration • providing sufficient evidence for an anti-trust investigation to for Market Regulation (SAMR) and Provincial Market Regulatory be launched, if SAMR or the PMRD had no clues or evidence; Departments (PMRDs) have the discretion to grant immunity or miti- • providing evidence the SAMR or PMRD can use to determine a gate the penalty for undertakings participating in a cartel if undertaking monopoly agreement exists under the AML. voluntarily reports the relevant facts and provides material evidence. • for the second and following applicants, providing: According to the Leniency Guidelines published in June 2020, • evidence that has greater proving power or supplementary the immunity and mitigated rate shall be determined according to the proving value in terms of the conclusion and implementation following rules: of the cartel agreement; • for the first applicant, SAMR or PMRD may grant immunity to • evidence that has supplementary proving value to prove: such undertaking or mitigate the fine amount by not less than • the content of the cartel agreement; 80 per cent; • the time of the conclusion and implementation of the • for the second applicant, the fine amount may be mitigated by 30 cartel agreement; per cent to 50 per cent; • the scope of the products or services involved; and • for the third applicant, the fine amount may be mitigated by 20 per • the participating members; and cent to 30 per cent; and • other evidence that can prove the cartel agreement, or fix • for subsequent applicants, the fine amount can be mitigated by not the probative power of the evidence that proves the cartel more than 20 per cent. agreement.

When determining the confiscation of illegal earnings, SAMR or PMRD A leniency application can be made orally. In practice, SAMR or PMRD may apply the same immunity and mitigated rate to deal with the permits an undertaking to orally submit the leniency application if there illegal earnings. are disclosure risks in the context of civil litigation. The oral submission To obtain immunity or a mitigated sanction, the undertaking must will be conducted at the office of SAMR or a PMRD. SAMR or PMRD offi- cease the suspected cartel arrangements immediately after making the cials will make written records of the oral submission, which shall be application for leniency; unless SAMR or a PMRD requires it to continue verified and signed by the representatives of the undertaking. carrying out the cartel acts in order to ensure the smooth progression of the investigation. If the undertaking has applied for leniency from Subsequent cooperating parties an overseas law enforcement agency which requires it to continue to 30 Is there a formal programme providing partial leniency for perform the cartel acts, it shall report this to SAMR or a PMRD. parties that cooperate after an immunity application has been The undertaking must also cooperate promptly, continuously, made? If so, what are the basic elements of the programme? comprehensively and sincerely with the investigation, properly If not, to what extent can subsequent cooperating parties preserving and providing evidence and information, and must not expect to receive favourable treatment? conceal, destroy or transfer evidence or provide false materials or infor- mation or engage in any other conduct that may affect the anti-trust An undertaking applying for leniency by submitting the report on the investigation. cartel agreement and material evidence after the first-in may apply to The application for leniency must not be disclosed without the SAMR or PMRD for mitigation. SAMR or PMRD issues a written receipt consent of SAMR or the PMRD. to the undertaking specifying the list of materials and the time it was received. Basic elements of the immunity programme According to the Leniency Guidelines published in June 2020, the leni- Going in second ency application shall be accompanied by a report and material evidence. 31 How is the second cooperating party treated? Is there an The report must include: ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, • basic information of the participants of the cartel agreement how does it operate? (including but not limited to name, address, contact information and participating representatives, etc); The mitigated rates for fines for the second and following applicants are: • the background of the cartel agreement (including but not • 30 per cent to 50 per cent for the second applicant; limited to the time, place, content, and specific participants of the • 20 per cent to 30 per cent for the third applicant; and agreement); • no more than 20 per cent for each subsequent applicant. • the main content of the cartel agreement (including but not limited to the products or services involved, price, quantity, etc); There is no ‘immunity plus’ or ‘amnesty plus’ treatment under the AML. • the undertakings’ conclusion and implementation of the cartel If an undertaking in one anti-trust investigation reports information agreement; about another anti-trust violation occurring in a separate industry, it • the geographic area and market scale affected by the cartel may not get additional benefits from SAMR or the PMRD because the agreement; authority may not have enough enforcement resources to investigate • the duration of the implementation of the cartel agreement; the reported conduct in the other industry and cannot prove the truth- • explanation of the material evidence; fulness of such reports. However, if another anti-trust investigation www.lexology.com/gtdt 85 © Law Business Research 2020 China DeHeng Law Offices

is initiated based on such a report, the reporter will benefit from the • the undertaking must cooperate promptly, continuously, compre- leniency application in the separate anti-trust investigation and may be hensively and sincerely with the investigation of SAMR or PMRD; eligible for benefits in the current anti-trust investigation. • the undertaking must properly preserve and provide evidence and information, and must not conceal, destroy or transfer evidence or Approaching the authorities provide false materials and information; 32 Are there deadlines for initiating or completing an application • the application for leniency from SAMR or PMRD must not be for immunity or partial leniency? Are markers available and disclosed without the consent of SAMR or PMRD; and what are the time limits and conditions applicable to them? • not engage in any other conduct that may affect the antitrust investigation. The deadlines for initiating or completing an application for immunity (ie, full leniency or amnesty) or partial leniency is the issuance of the The subsequent applicants are expected to do the same to obtain prior notification of the administrative penalty. partial leniency. Undertakings participating in a cartel agreement can apply for leni- ency before SAMR or PMRD initiates an anti-trust investigation. They Confidentiality can also apply for leniency after the initiation of an anti-trust investiga- 34 What confidentiality protection is afforded to the immunity tion but before the prior notification of the administrative penalty. applicant? Is the same level of confidentiality protection applicable to subsequent cooperating parties? What The marker system for the first-in information will become public during the proceedings and The marker system is detailed in the Leniency Guidelines. For the first when? applicant that applies for leniency by submitting the report on the cartel agreement and material evidence, SAMR or the PMRD shall issue a According to the Leniency Guidelines, the report, documents and other written receipt to the applicant specifying the time of receipt and a list materials submitted by the undertaking in applying for leniency shall of materials. This written receipt is an official document to prove the not be disclosed to the public without the consent of the undertaking, chronological order of the leniency application. The written receipt will and no entity or individual has the right to access such information. not be issued to the first applicant if the report submitted does not meet In practice, in order to attract more leniency applications, SAMR the requirements of the Leniency Guidelines. and PMRDs will not disclose the documents or materials provided by If the first applicant submits a report that meets the requirements the leniency applicants to any third party. No other agencies, organisa- of the Leniency Guidelines, but temporarily cannot provide complete tions or individuals can obtain access to such information. material evidence when it applies for leniency, SAMR or the PMRD may The level of confidentiality protection applicable to subsequent register the date of the report and will issue a written receipt if the cooperating parties is the same as to the first-in. undertaking submits all necessary supplemental materials within the In practice, SAMR or PMRDs keep the identity of the leniency period specified by the authority. This registration is the marker and the applicants confidential during investigations. However, the applicants’ written receipt issued by SAMR or PMRD will show the date on which it identities will be revealed in SAMR or the PMRD’s final decision. Usually, received the report. SAMR or the PMRD will publish the final penalty decisions and the deci- If the undertaking fails to supplement the material evidence within sions of exemption from penalties at the end of an investigation, which the specified period (generally no longer than 30 days, and this can will disclose the leniency applicants’ identities. For example, in the be extended to 60 days under special circumstances), SAMR or PMRD Zhejiang Insurance Companies Cartel case (2013), NDRC published its will cancel its registration qualifications, and the first-in will have lost penalty decisions and the decision of exemption from penalties on its its marker. website and disclosed the identities of leniency applicants. After the first-in is disqualified from registration, it can still supplement the material evidence and apply for immunity if there are Settlements no follow-up leniency applicants. If other undertakings have already 35 Does the investigating or prosecuting authority have the applied for leniency, the first-in whose registration qualification has ability to enter into a plea bargain, settlement, deferred been disqualified may apply for mitigation. prosecution agreement (or non-prosecution agreement) or Normally, the marker is made in written. In certain cases, the leni- other binding resolution with a party to resolve liability and ency application can be made orally through a dictation in SAMR to penalty for alleged cartel activity? What, if any, judicial or reduce the risk of disclosure. other oversight applies to such settlements?

Cooperation The Guidelines on the Undertakings’ Commitments in Antitrust Cases 33 What is the nature, level and timing of cooperation that (the Commitments Guidelines) was issued by the Anti-monopoly is required or expected from an immunity applicant? Is Commission in 2019 and published in June 2020. According to the there any difference in the requirements or expectations Commitments Guidelines, SAMR or PMRD may accept commitments for subsequent cooperating parties that are seeking partial from undertakings in which the undertakings undertake or commit to leniency? eliminating anti-competitive effects of the infringing conduct within a period approved by the authority. To obtain full immunity, the undertaking as a party to a cartel agreement The commitment is, in general, a unilateral conduct made by the shall be first-in and voluntarily report the circumstances of its cartel undertaking under investigation. However, since the content of the activities and provide ‘material evidence’ that can help SAMR or PMRD commitments should be evaluated and discussed with SAMR or the PMRD to start the investigation or to make the final decision. before the decision of the suspension of the investigation, a settlement In addition, pursuant to the Leniency Guidelines, the applicants negotiation could be conducted. The process of settlement negotiation is: should also fulfil the following obligations: • timely filing of the application to suspend the investigation, together • the suspected cartel arrangements must be stopped immediately with the initial commitments to establish the foundation of the settle- after the application for leniency; ment negotiation between the undertaking and SAMR or the PMRD;

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• the undertaking may negotiate with SAMR or PMRD regarding PMRDs are required to issue a prior notice for administrative penal- the content of the commitments and address all concerns of the ties to the undertaking under investigation before formally making a authority; and decision. The prior notice for administrative penalties includes the basic • if SAMR or PMRD, after considering the subjective attitude of the facts found by SAMR or the PMRD. undertaking towards the cartel, the nature of the cartel, its duration, In Calcium Gluconate API (2020), Shandong Kanghui Medicine its consequences, its social impact, the measures committed by (Kanghui), Weifang Puyunhui Pharmaceutical (Puyunhui) and Weifang the undertaking and their expected effects, holds that the facts are Taiyangshen Pharmaceutical (Taiyangshen) were pharmaceutical clear, and the committed measures are sufficient to eliminate the distributors in China. They purchased and distributed calcium gluco- effects caused by the cartel arrangements, SAMR or the PMRD may nate API (active pharmaceutical ingredient) for injection from August decide to suspend the investigation based on the commitments. 2015 to December 2017. SAMR found that they held a dominant posi- tion in China’s sales market for calcium gluconate API for injection and Price-fixing, restricting production or sales volume, and dividing the had abused their dominance by selling products at unfairly high prices market cannot be settled by commitments. and imposing unreasonable trading conditions on clients. SAMR issued In addition, if SAMR or PMRD has identified and verified the cartel a penalty decision against them in April 2020. The total fines plus the agreement after the investigation, it will no longer accept applications confiscation of illegal earnings amounted to RMB 325.5 million yuan for the suspension of the investigation proposed by the undertaking. – the largest penalty imposed on API producers and the overall phar- If the cartel arrangements have affected the legitimate rights and maceutical industry in China to date. interests of another unspecified majority of undertakings, consumers, Before issuing the penalty decision, SAMR sent a prior notice to the or the public interest, SAMR or PMRD may solicit public opinions on the companies outlining the details of its planned decision as well as their commitment measures proposed by the undertaking under investiga- legitimate rights to make statements, arguments or to apply for hear- tion. The time for soliciting opinions is generally no less than 30 days. ings. Kanghui applied for a hearing, which was conducted on 8 January The investigation can be terminated if the undertaking performs 2020. During the hearing, not all of the evidence collected from the its commitments within a time limit designated by SAMR or the PMRD. manufacturers or from dozens of calcium gluconate injection manufac- However, it can be resumed, if: turers was provided to the companies for cross-examination by SAMR • the undertaking fails to perform its commitments; due to reasons of confidentiality. • a major change has occurred which is relevant to the grounds for This case indicates that when challenging SAMR or PMRD’s penalty the settlement; or decision in administrative litigation, administrative review or hearing • the settlement was based on incomplete or inaccurate information before the decision, the undertaking under investigation may not gain provided by the undertaking. access to SAMR’s or PMRD’s complete case files.

Corporate defendant and employees Representing employees 36 When immunity or partial leniency is granted to a corporate 39 May counsel represent employees under investigation in defendant, how will its current and former employees be addition to the corporation that employs them? When should treated? a present or past employee be advised to obtain independent legal advice or representation? There are no administrative or criminal penalties imposed on employees under the AML, unless they obstruct the investigation. Since the current There are no administrative or criminal penalties imposed on employees and former employees have no liability under the AML, there is no under the Anti-Monopoly Law of China (AML), unless they obstruct an immunity or partial leniency program for them. investigation. But the law does not prohibit counsel from representing employees as well as their corporation, provided there is no conflict Dealing with the enforcement agency of interest. 37 What are the practical steps for an immunity applicant or subsequent cooperating party in dealing with the Multiple corporate defendants enforcement agency? 40 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated? Before applying for leniency, the undertaking may communicate with SAMR or a PMRD anonymously or using its real name, either orally or Affiliated companies normally do not require separate representation. in writing. For instance, in a cartel investigation, both the parent company and During the whole process of the antitrust investigation, an immu- its subsidiaries are involved. The counsel can represent them all to nity applicant or subsequent cooperating party must cooperate with the defend the case. investigation promptly, continuously, comprehensively and sincerely. For multiple corporate defendants which are not affiliates, there could be a conflict of interest for counsel to represent all of them in DEFENDING A CASE a cartel investigation. For instance, when all the parties want to apply immunity, there is no way to compromise. Therefore, it is not advisable Disclosure for a counsel to represent multiple corporate defendants in a cartel 38 What information or evidence is disclosed to a defendant by investigation. the enforcement authorities? Payment of penalties and legal costs Usually, the undertaking under investigation has very limited access 41 May a corporation pay the legal penalties imposed on its to the case information during the investigation. State Administration employees and their legal costs? for Market Regulation (SAMR) or the Provincial Market Regulatory Department (PMRD) may disclose information or evidence to the There are no administrative or criminal penalties imposed on employees undertaking under investigation at its discretion. In addition, SAMR and under the AML, unless they obstruct the investigation. If it is the latter, www.lexology.com/gtdt 87 © Law Business Research 2020 China DeHeng Law Offices

the company could pay the legal costs or financial penalties imposed on • protecting legitimate interests during foreign trade or foreign that employee, whether former or current, as no rules or regulations economic cooperation; or prevent the company from doing so. • other circumstances specified by laws or the State Council. In practice, the company will not pay the fines to the authority 2 The specific form and effect of the cartel arrangement realises the directly on behalf of its employees. The employees will pay the fines public interests or efficiencies; and from his or her personal account and the company will indemnify such • the causation between the cartel arrangement and the public losses by paying the employees for the same amount. interests or efficiencies can be shown; and • the cartel arrangement is necessary in order to realise the Taxes public interests or efficiencies. 42 Are fines or other penalties tax-deductible? Are private 3 The cartel arrangements do not seriously restrict competition in damages payments tax-deductible? the relevant market. 4 The cartel arrangements enable consumers to share the benefits According to the Corporate Income Tax Law (2018), penalties, fines therefrom, such as lowering prices, improving quality or intro- and losses on the confiscated property may not be deducted when ducing new types of products into the market. computing the taxable amount of income. According to the same law costs, expenses, taxes, losses and other In addition to the leniency program and commitment negotiation, reasonable expenditure (the necessary and normal expenditure which another effective way to reduce the fine is for the undertaking to nego- complies with the norms of production and business activities and which tiate with the relevant authority and proof that: should be included in the profit and loss in the current period or in the • it was coerced by other undertakings to implement the cartel; relevant asset costs) incurred in direct relation to income received by • it was forced or coerced by administrative authorities to implement an enterprise may be deducted when computing the taxable amount the cartel; of income. Private damages payments are not necessary and normal • it cooperated with SAMR or a PMRD and made a meritorious expenditure which complies with the norms of production and business performance; activities, therefore cannot be deducted when computing the taxable • it took the initiative to eliminate or mitigate the harm and conse- amount of income. quences of the cartel; • it voluntarily provided relevant evidence of other undertakings’ International double jeopardy violation of the AML; 43 Do the sanctions imposed on corporations or individuals take • it neither played a leading role in cartel nor coerced other under- into account any penalties imposed in other jurisdictions? In takings to implement the cartel; private damage claims, is overlapping liability for damages in • it neither committed multiple examples of monopolistic conduct other jurisdictions taken into account? nor violated the AML in the past; • the duration of the cartel’s existence was very short; and SAMR and PMRDs do not recognise a principle of international double • it has stopped taking part in cartel activities. jeopardy. Another jurisdiction may penalise the undertaking under investigation by imposing fines. However, this will not prevent SAMR or UPDATE AND TRENDS PMRD from investigating the cartel activities and imposing fines in China. The purpose of the damages in private anti-trust litigation is to Recent cases compensate for the losses caused by the monopolistic conduct. If the 45 What were the key cases, judgments and other developments plaintiff already received damages or amounts paid in settlements of the past year? from the defendant in civil cases in other jurisdictions, such amount should be deducted from the damages in the civil case in China to avoid The glacial acetic acid API cartel investigation double recovery by the plaintiff. In short, in private damage claims, the Glacial acetic acid is used in the production of hemodialysis concen- overlapping liability for damages in other jurisdictions may be taken trate for the treatment of advanced kidney failure and uremia. Chengdu into account. Huayi, Sichuan Jinshan and Taishan Xinning are three undertakings that supply glacial acetic acid active pharmaceutical ingredients (API) in Getting the fine down China. The three undertakings agreed to raise the price for glacial acetic 44 What is the optimal way in which to get the fine down? acid API, which resulted in a hike in the price from 9.3 yuan per kilo to 28 yuan per kilo or 33 yuan per kilo. In December 2018, the SAMR fined Under article 15 of the AML, the cartel prohibition rules under the AML the three undertakings 4 per cent of their turnover for the preceding are not applicable if undertakings can prove the following. year (the year before the investigation is launched), and confiscated the 1 At least one of the following public interests or efficiencies can be illegal earnings. realised through the cartel arrangement: • advancing technology or researching and developing The Tianjin port yard cartel and leniency application new products; Twenty-seven undertakings operating container yard services at Tianjin • improving product quality, lowering cost, increasing efficiency, port discussed increasing and adjusting the comprehensive surcharge unifying specifications and standards, or implementing a divi- and unloading fees from 2010. Ten of these undertakings no longer exist sion of labour based on specialisation; or are in operation. Sixteen of them were fined by the Tianjin Municipal • improving the operation efficiency and competitiveness of Development and Reform Commission (the Tianjin DRC) at 2 per cent to small- and medium-sized undertakings; 5 per cent of their turnovers in the preceding year because of the cartel • realising public interests such as energy conservation, envi- arrangements. ronmental protection, and rescue and relief efforts; Tianjin Penvavico Logistics was exempted from the fines because • alleviating problems related to a serious drop in sales or it was the first to file a leniency application, actively cooperated with obvious overproduction during an economic downturn; Tianjin DRC and took the initiative in stopping the illegal activities.

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Tianjin Keyun International Logistics was the second to file a leni- ency application, and as a result its fine was halved from 5 per cent to 2.5 per cent of its turnover in the preceding year.

Regime reviews and modifications 46 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime? Ding Liang [email protected] SAMR solicited public comments on a Draft of Amendments to the Anti- Monopoly Law of China (the Draft AML) in January 2020. The Draft AML is still subject to consultation and further review by China’s administrative 12/F, Tower B, Focus Place and legislative bodies. While there is no fixed timetable for formal adop- 19 Finance Street tion, the Draft AML could be passed by the National People's Congress Xicheng District as early as 2021 if the remaining process runs smoothly. Beijing 100033 The proposals contained in the Draft AML include increasing fines China Tel: +86 10 5268 2800 against cartel arrangements and changes to the AML to deal with ‘hub www.dehenglaw.com and spoke’ arrangements. The Draft AML proposes increasing fines for cartel arrangements and changes to the AML to allow for ‘hub and spoke’ arrangements to be investigated and dealt with. vaccines, testing technology, medical equipment and protective equipment). Increasing fines against cartel arrangements • unifying specifications and standards, or implementing a division of The Draft AMP proposes the following: labour based on specialisations to improve product quality, reduce • a new fine applied to undertakings found to be organising or costs and increase efficiency; facilitating others to reach cartel agreements of 10 per cent of its • realising public interest through assisting rescue and relief revenue for the previous year; efforts; and • the fine for trade associations organising or facilitating others to • improving the operation efficiency and competitiveness of small- reach cartel agreements to be increased from 500,000 yuan to 5 and medium-sized undertakings. million yuan; • the fine for agreeing to a cartel arrangement that is not yet imple- In addition, to create a fair competitive market environment to help mented to be increased from 500,000 yuan to 50 million yuan; and combat the pandemic, restart the economy, and effectively protect • a new fine applied to undertakings that agree to a cartel arrange- consumer interests, SAMR tightened its antitrust enforcement of under- ment, but have no revenue for the previous year of 50 million yuan. takings that manufacture and distribute masks, medicines and medical equipment public utilities (eg, water, electricity and gas suppliers) and Hub & spoke collusion businesses closely related to people’s livelihoods. In a hub and spoke collusion, the common supplier is the ‘hub’, while the distributors are the ‘spokes’. The hub facilitates the coordination of competition between the spokes and there is no direct contact between the spokes. In this way, a cartel can be achieved based on indirect communication between the cartel’s horizontally aligned members. The AML in its current form is unable to deal with such an arrange- ment, as it only applies to competing undertakings and lacks relevant provisions to deal with an undertaking that is not a competitor to a cartel’s parties but plays an important role in it. The Draft AML proposes extending the scope of investigations and penalties for monopoly agreements to include undertakings that organise or facilitate other undertakings to reach cartel agreements.

Coronavirus 47 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

On 5 April 2020, SAMR issued the Announcement on Anti-monopoly Enforcement to Support Combating Pandemic and Restarting Economy (the Announcement), which is aimed at facilitating efforts to combat the covid-19 pandemic and restart China’s economy by exempting the following agreements among competitors from liability under the AML: • improving technologies, efficiency, public interest and consumer protection (eg, joint R&D agreements in the fields of medicines, www.lexology.com/gtdt 89 © Law Business Research 2020 Denmark

Frederik André Bork, Olaf Koktvedgaard and Søren Zinck Bruun & Hjejle

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? An amendment to the Danish Competition Act entered into force on 1 The Danish rules on cartel regulation are laid down in the Danish January 2018. The amendment concerned the following topics: Competition Act (the Act), which entered into force in 1998. An English • the abolition of the system for notification of agreements; version of the Act, the relevant executive orders issued under the Act • a change in the Danish de minimis thresholds from being turnover- and guidelines on the application of the rules, dawn raids, leniency and based to being market share-based; compliance are accessible on the website of the Danish Competition • the addition of a ‘stop-the-clock’ rule, mandating the DCCA to and Consumer Authority (DCCA). The Competition Damages Act lays out suspend the deadline in merger cases; the regulation on damages claims related to infringements of compe- • the addition of a rule permitting preliminary leniency appli- tition law. cations; and Danish competition law is, to a large extent, similar to EU compe- • a rule limiting the right to ‘own access’ (the right to get access to a tition law. Section 6 of the Act contains a general prohibition against file in cases mentioning an individual’s or an undertaking’s name) anticompetitive agreements similar to article 101 (1) of the Treaty on in the DCCA’s cases. the Functioning of the European Union (TFEU). Correspondingly, section 8 of the Act contains an efficiency defence for agreements, decisions or The recent EU directive (Directive 2019/1 of 11 December 2018 to concerted practices that are caught by section 6 similar to article 101 (3) empower the competition authorities of the member states to be more of the TFEU. Moreover, the Danish rules are interpreted in accordance effective enforcers and to ensure the proper functioning on the internal with case law from the European Commission as well as the European market) has not yet been implemented in Denmark. The directive Court of Justice. obliges member states to assign national competition authorities the power to impose fines or to request for a court to impose fines in cases Relevant institutions regarding infringements of articles 101 and 102 TFEU without involving 2 Which authority investigates cartel matters? Is there the State Prosecutor. The deadline for implementing the directive is 21 a separate prosecution authority? Are cartel matters February 2021. adjudicated or determined by the enforcement agency, a separate tribunal or the courts? Substantive law 4 What is the substantive law on cartels in the jurisdiction? The DCCA constitutes, together with the Danish Competition Council (the Council), an independent competition authority. The DCCA is the Danish competition law is generally consistent with EU competition law. authority responsible for enforcing the Act. Thus, the DCCA investigates Accordingly, the substantive provisions of the Act largely correspond cartels and other competition law infringements and ensures compli- to the similar provisions of the TFEU. Section 6 of the Act lays down ance with the competition rules in general. a general prohibition against certain anticompetitive agreements and Cartel cases are generally initiated, investigated and prepared by provides that such agreements are void unless covered by the excep- the DCCA. On the basis of the DCCA's recommendation, the cases are tions in section 7 (de minimis rule for non-hard-core infringements) or subsequently decided by the Council in the first instance. Decisions by the exemptions in section 8 of the Act (see below). the Council may be appealed to the Danish Competition Appeal Tribunal Section 6(1) of the Act provides that it is prohibited for undertak- (the Appeal Tribunal) and subsequently to the Danish courts. Appeals ings etc. to enter into agreements that directly or indirectly have as proceedings before the Danish courts are civil. their object or effect the restriction of competition. The prohibition laid Where the Council finds that an intentional or grossly negligent down in section 6(1) further applies to decisions made by associations breach of competition law has been committed, the Council may decide of undertakings as well as concerted practices between undertakings to refer the case directly to the State Prosecutor for Serious Economic (see section 6(3) of the Act). and International Crime (the State Prosecutor) for further criminal The principle of per se illegality is not applied under Danish law. investigation and prosecution. The Council may delegate this authority As under EU law, certain anticompetitive agreements are considered to either the chairman of the Council or, in specific cases, to the director- hard-core infringements under Danish law (ie, price-fixing agreements, general of the DCCA. restrictions on production or sales, market and customer sharing and bid rigging). However, there are no specific provisions dealing with these types of agreements. Thus, all anticompetitive agreements are

90 Cartel Regulation 2021 © Law Business Research 2020 Bruun & Hjejle Denmark dealt with under the general prohibition set out in section 6(1) of the Act Extraterritoriality and are subject to a competitive effects test (section 8 of the Act). 7 Does the regime apply to conduct that takes place outside the Section 8(1) of the Act provides that the prohibition set out in jurisdiction (including indirect sales into the jurisdiction)? If section 6(1) does not apply if agreements, decisions or concerted prac- so, on what jurisdictional basis? tices between undertakings: • contribute to improving the efficiency of the production or The Act contains no provisions on extraterritoriality (except for section distribution of goods or services or to promoting technical or 29, which provides that the Act does not extend to the Faroe Islands and economic progress; Greenland). • provide consumers with a fair share of the resulting benefits; However, in general, it is assumed that the Act extends to conduct • do not impose restrictions on the undertakings that are not neces- that has anticompetitive effects in Denmark (the effects doctrine). sary to attain these objectives; and Consequently, a cartel between two undertakings situated outside • do not afford such undertakings the possibility of eliminating Denmark may infringe the Danish competition rules and be subject to competition in respect of a substantial part of the products or scrutiny by the Danish competition authorities. services in question. Export cartels The four conditions set out above are cumulative. 8 Is there an exemption or defence for conduct that only affects customers or other parties outside the jurisdiction? Joint ventures and strategic alliances 5 To what extent are joint ventures and strategic alliances The Act only applies to conduct having an anticompetitive effect in potentially subject to the cartel laws? Denmark (the effects doctrine).

Joint ventures and strategic alliances are subject to cartel laws. Section Industry-specific provisions 6(2) of the Act explicitly lists coordination through the creation of a 9 Are there any industry-specific infringements? Are there any joint venture as an example of an anticompetitive agreement which is industry-specific defences or exemptions? covered by the prohibition in section 6(1). Coordination through a full-function joint venture is assessed by The Act contains no provisions on industry-specific infringements or the DCCA as part of the merger control process if the thresholds for industry-specific defences or exemptions. However, the Act does not notification are met. The creation of a non-full-function joint venture apply to pay and working conditions or to agreements, decisions or is not notifiable (in line with EU competition law, cf. C-248/16 Austria concerted practices within the same undertaking or group of under­ Asphalt GmbH & Co OG v. Bundeskartellanwalt) and should therefore takings (sections 3 and 5(1) of the Act). undergo a self-assessment by the undertakings concerned to ensure that the joint venture does not lead to anticompetitive coordination. Government-approved conduct 10 Is there a defence or exemption for state actions, APPLICATION OF THE LAW AND JURISDICTIONAL REACH government-approved activity or regulated conduct?

Application of the law Under section 2(2) of the Act, the prohibition against anticompetitive 6 Does the law apply to individuals, corporations and other agreements, including cartels, does not apply where an anticompetitive entities? agreement is a direct or necessary consequence of public regulation. ‘Public regulation’ comprises, among others, legislation, ministerial orders, The substantive provisions of the Danish Competition Act (the Act) apply general budget rules, ratified conventions and EU regulations. Section 2(2) to agreements between undertakings, decisions made by associations ensures that the competition authorities do not overrule politically decided of undertakings and concerted practices between undertakings. The Act public regulations and that companies are shielded from the consequences applies to economic activity, whether carried out under private or public of anticompetitive agreements required by public regulation. In this management. There are no requirements in terms of corporate form. respect, section 2(2) is fairly similar to the state compulsion defence under The decisive criterion is whether or not the undertaking concerned EU competition law (see, for example, case C-280/08 P, Deutsche Telekom). carries out economic activity on a market. However, the Act does not apply to agreements, decisions or concerted practices within the same INVESTIGATIONS undertaking or group of undertakings. The Act applies to individuals who carry out economic activity or Steps in an investigation have a controlling interest in one or more undertakings. Furthermore, 11 What are the typical steps in an investigation? the Act applies to individuals practising a liberal profession, such as lawyers, accountants, doctors and dentists. Finally, members of the Cartel investigations are primarily carried out by the Danish Competition board, the management and employees of the relevant undertakings and Consumer Authority (DCCA) but may also be carried out by the must adhere to the competition rules and may be held liable for compe- State Prosecutor for Serious Economic and International Crime (the tition law infringements, as criminal sanctions may be imposed on both State Prosecutor), if there is reasonable cause to suspect an infringe- undertakings and individuals. ment that will lead to a penalty. The DCCA may initiate a cartel investigation on its own initiative, for example following an analysis of the competitive environment in a specific sector. Cartel investigations may also be initiated on the basis of a leniency application, a complaint or a tip from a third party. In this regard, the DCCA has introduced a feature on its website making it possible for employees or others who may have knowledge of a cartel to inform the DCCA anonymously. www.lexology.com/gtdt 91 © Law Business Research 2020 Denmark Bruun & Hjejle

During an investigation, the DCCA will usually carry out a dawn raid • conduct monitoring (including the filming of individuals at non- on the premises of the relevant undertaking to secure evidence. The public locations and registration of individuals’ locations based on DCCA must obtain a court order stating the subject matter and purpose mobile phones); and of the inspection ahead of a dawn raid. • install ‘sniffer programs’ on computers. Following the dawn raid, the DCCA will conduct a review of the secured material, which can be a lengthy procedure. Electronic mate- The legal basis for these measures entered into force on 1 March 2013 rial copied from the undertaking’s IT system must be reviewed within and is, thus, relatively new. 40 work days after the dawn raid has been carried out. The review of It should be noted that the DCCA does not have the right to review the electronic material must be concluded with a report listing the an undertaking’s correspondence with its external legal counsel documents that the DCCA has tagged as potentially relevant for the concerning the undertaking’s compliance with competition law. This investigation. Afterwards, the undertaking subject to the dawn raid will corresponds to the EU rules on legal professional privilege. However, have 10 work days (according to the DCCA's guidelines on dawn raids) the question of whether the State Prosecutor will have access to such to go through the tagged material. The 10 work days constitute a stand- correspondence has not yet been tried before the courts. still period for the DCCA, because the DCCA does not work with the case during this period. During the stand-still period, the undertaking can INTERNATIONAL COOPERATION make protests to material included by the DCCA which the undertaking does not find relevant for the investigation or which is covered by the Inter-agency cooperation principle of legal professional privilege. 13 Is there cooperation with authorities in other jurisdictions? When an agreement is reached as to what documents can be If so, what is the legal basis for, and extent of, such included in the investigation, the DCCA will commence the analysis cooperation? phase which typically lasts two to three months. The investigation may result in a decision by the DCCA to: Denmark is part of the European Competition Network (ECN) and • close the case; thereby participates in the cross-border cooperation between the • refer the case to the State Prosecutor (if the DCCA finds that an European Commission and the national competition authorities of the intentional or grossly negligent infringement of competition law European Union’s other member states. has been committed); or The Danish Competition and Consumer Authority (DCCA) also • continue the investigation and present the case to the Danish participates in the informal cooperation of the European competition Competition Council (the Council) in order for the Council to render authorities. Further, the DCCA may conduct dawn raids to grant assis- a decision (whereafter the DCCA may refer the case to the State tance to the European Commission and other competition authorities Prosecutor). of the European Union or the European Economic Area (EEA) area in connection with these authorities’ application of articles 101 and 102 Investigative powers of the authorities of the Treaty on the Functioning of the European Union (TFEU) or arti- 12 What investigative powers do the authorities have? Is court cles 53 or 54 of the EEA agreement, in accordance with section 18(9) approval required to invoke these powers? of the Act. On a Nordic level, the Danish competition authorities cooperate with Under section 17 of the Danish Competition Act (the Act), the DCCA may Norway, Sweden, Finland, Iceland, Greenland and the Faroe Islands. An demand all information deemed necessary to carry out its tasks under annual meeting is held, the purpose of which is to exchange legislative the Act or to decide whether the provisions of the Act apply to a certain experiences and discuss cases and subjects of common interest. Also, situation. Pursuant to section 18 of the Act, the DCCA is entitled to carry the DCCA may conduct dawn raids to grant assistance to the compe- out dawn raids on the premises of an undertaking. If the DCCA cannot tition authorities in Sweden, Norway, Iceland, Finland, Greenland and gain access to information directly from the undertaking, the DCCA is the Faroe Islands, in respect of the application of national competition entitled to be given access to data processors that stores or processes rules by these authorities in accordance with section 18(10) of the Act. data on behalf of the undertaking. Furthermore, Denmark has entered into a formal agreement with the During a dawn raid, the DCCA can make copies of the undertak- national competition authorities in Sweden, Norway, Finland and Iceland ing's IT system and electronic media (section 18 of the Act). The DCCA on the exchange of confidential information. can request oral statements (concerning factual circumstances) from Finally, Denmark is also active within the OECD (which has set up employees and can request employees to present the contents of their the Global Competition Network), the International Competition Network pockets and briefcases. The DCCA is also entitled to access company vehi- and the World Trade Organization. cles. However, the DCCA is not allowed to access private homes or private cars when conducting dawn raids under Danish law (as opposed to dawn Interplay between jurisdictions raids carried out under EU law in accordance with Regulation 1/2003). 14 Which jurisdictions have significant interplay with your Before conducting a dawn raid, the DCCA is required to obtain a jurisdiction in cross-border cases? If so, how does this affect court order containing information on the subject matter and purpose of the investigation, prosecution and penalising of cartel activity the inspection. The DCCA must stay within the limits of the court order in cross-border cases in your jurisdiction? when collecting and reviewing the material. If there is a confirmed suspicion of cartel activity, the case may In general, jurisdictions within the EU (and the ECN) interplay with the be referred to the State Prosecutor, who, under the Danish rules on Danish competition authorities. Moreover, under section 18a of the Act, criminal procedure, is entitled to conduct searches (including searches the DCCA may, subject to reciprocity, disclose information covered by its of private homes) subject to court approval. Furthermore, the State duty of confidentiality to other competition authorities if such informa- Prosecutor may, subject to a court order, among other things: tion is necessary to assist in the enforcement of the competition rules • conduct wiretapping; by these authorities, and if the DCCA thereby fulfils Denmark’s bilateral • search the premises of individuals who are not suspected of partic- and multilateral obligations. ipating in a cartel;

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CARTEL PROCEEDINGS Circumstantial evidence 17 Can an infringement be established by using circumstantial Decisions evidence without direct evidence of the actual agreement? 15 How is a cartel proceeding adjudicated or determined? The Act does not contain any specific provision on the type or threshold Decisions on cartel infringements can be made by the Danish of evidence needed to establish an infringement. Section 6(3) of the Competition Council (the Council), based on investigations by the Danish Act provides that section 6(1) applies to cases of concerted practices. Competition and Consumer Authority (DCCA) or directly by the courts in Consequently, it follows from section 6(1) of the Act that a restriction of a criminal proceeding. competition can be demonstrated without proof of a specific agreement. If a case is referred to the State Prosecutor for Serious Economic The DCCA must prove its case, but it and the courts are free to and International Crime (the State Prosecutor) (either directly by the assess all the evidence. DCCA or following a Council decision), the undertakings involved or the Case law from the European Court of Justice (ECJ) serves as guid- responsible individuals may be formally charged with a competition law ance in relation to the inclusion of circumstantial evidence by the DCCA infringement, and the case will be brought before the courts. and the courts. In this regard, the ECJ has held that the existence of an As a general rule, sanctions can only be imposed by the State anticompetitive infringement can ‘be inferred from a number of coinci- Prosecutor or the courts, while the Danish competition authorities do dences and indicia that, taken together, can, in the absence of another not have the power to impose administrative fines or criminal sanctions plausible explanation, constitute evidence of an infringement of the on undertakings or individuals. Typically, the State Prosecutor will offer competition rules’ (case T–113/07, Toshiba). the undertaking a fine in lieu of prosecution by issuing a fixed penalty notice. Where case law exists on an identical violation of competition Appeal process rules, the DCCA may, subject to approval by the State Prosecutor, also 18 What is the appeal process? propose a fixed penalty notice. If the undertaking accepts the fine, there will be no further proceed- Decisions made by the Council may be appealed to the Appeal Tribunal. ings and the case may therefore be closed relatively quickly. If the Decisions made by the Council may not be brought before any other undertaking does not accept the fine proposed by the State Prosecutor administrative authority than the Appeal Tribunal and may not be brought or the DCCA, the case will be tried by the courts. before the courts until the Appeal Tribunal has made its decision. It should be noted, that the recent EU directive (Directive 2019/1 An appeal must be submitted to with the Appeal Tribunal within of 11 December 2018 to empower the competition authorities of the four weeks after a decision by the Council has been communicated to member states to be more effective enforcers and to ensure the proper the party concerned. The Appeal Tribunal generally conducts a full and functioning on the internal market) has not yet been implemented in thorough review of the case. Denmark. The directive obliges member states to assign national The infringing parties or any other party having a sufficient interest competition authorities the power to impose fines or to request for a in the subject matter of a case can appeal or bring decisions made by court to impose fines in cases regarding infringements of articles 101 the Appeal Tribunal before the courts within eight weeks after the and 102 TFEU without involving the State Prosecutor. The deadline for parties have been notified of the decision. If the parties fail to bring the implementing the directive is 21 February 2021. case before the courts within this deadline, the decision of the Appeal Tribunal becomes final. Burden of proof The DCCA cannot challenge a decision by the Appeal Tribunal 16 Which party has the burden of proof? What is the level of before the courts. However, the DCCA may appeal a decision by a lower proof required? court to a higher court.

The Danish Competition Act (the Act) does not contain any provisions on SANCTIONS the burden of proof or on the level of proof required. Consequently, the general rules of Danish law apply as regards the burden of proof. Criminal sanctions As a general rule, the burden of proof lies on the competition 19 What, if any, criminal sanctions are there for cartel activity? authorities to prove their case, including the existence of an anticom- petitive agreement under section 6 of the Act. However, if the authorities Criminal sanctions may be imposed on both individuals and under- prove an anticompetitive agreement, the burden of proof shifts so that takings where an intentional or grossly negligent infringement of the undertaking has to prove that the agreement meets the conditions competition law is established. of section 8 (similar to article 101(3) TFEU). As of 1 March 2013, imprisonment may be imposed on individuals In civil proceedings, the competition authorities and the courts are in cartel cases if their participation in the cartel has been intentional and free to assess the evidence. No hierarchy of different forms of evidence if the breach has been of a grave nature, especially owing to the extent of is set out in any statutory provisions. Accordingly, it is for the authorities the infringement or its potentially damaging effects. The maximum term and the courts to determine when the burden of proof has been lifted of imprisonment is usually one and a half years but may be increased up with the result that the burden of counter proof shifts to the undertaking. to six years in case of aggravating circumstances. The courts have yet In criminal proceedings, it is required that there is no reasonable to impose the first prison sentence for cartel participation, but prison doubt about the guilt of the defendant (the in dubio pro reo principle). sentences are, when relevant, expected to be imposed on members of For fines to be imposed, an infringement of the competition rules must the board or the management. be intentional or grossly negligent, while the requirement for imprison- When meting out the level of a fine, the gravity of the infringement ment for a cartel agreement is that the breach committed is intentional and its duration must be taken into account (see section 23(5) of the and of a grave nature. Act). Further, the level of the fine depends on the undertaking's world- wide group turnover. It is stated in the preparatory works of the Act that fines should not exceed 10 per cent of the undertaking's worldwide group turnover. www.lexology.com/gtdt 93 © Law Business Research 2020 Denmark Bruun & Hjejle

The gravity of the infringement will be defined as either less grave, • for less grave offences (eg, exclusive purchase obligations lasting grave or very grave. The indicative levels of the fines for each category more than five years) it was up to 400,000 Danish kroner, and of gravity (before and after the increase in the level of fines of 1 March now is up to 4 million kroner (or, for individuals, a minimum 2013) are: 50,000 kroner); • for less grave offences (eg, exclusive purchase obligations lasting • for grave offences (eg, resale price maintenance, certain types of more than five years) it was up to 400,000 Danish kroner, and exchanges of information and joint bids) it was 400,000 to 15 million now is up to 4 million kroner (or, for individuals, a minimum kroner, and now is 4 million to 20 million kroner (or, for individuals, 50,000 kroner); a minimum of 100,000 kroner); and • for grave offences (eg, resale price maintenance, certain types of • for very grave offences (eg, coordination of prices, production, exchanges of information and joint bids) it was 400,000 to 15 million customers or bids, and certain types of abuse of dominance) it kroner, and now is 4 million to 20 million kroner (or, for individuals, was a minimum of 15 million kroner, and now is a minimum of 20 a minimum of 100,000 kroner); and million kroner (or, for individuals, a minimum of 200,000 kroner). • for very grave offences (eg, coordination of prices, production, customers or bids, and certain types of abuse of dominance) it As it appears, the indicative level of fines for cartel behaviour exceeds was a minimum of 15 million kroner, and now is a minimum of 20 20 million Danish kroner for legal persons and 200,000 kroner for million kroner (or, for individuals, a minimum of 200,000 kroner). individuals. However, it should be noted that the courts are assigned considerable discretion when imposing fines. As it appears, the indicative level of fines for cartel behaviour exceeds 20 million Danish kroner for legal persons and 200,000 kroner for Compliance programmes individuals. However, it should be noted that the courts are assigned 22 Are sanctions reduced if the organisation had a compliance considerable discretion when imposing fines. programme in place at the time of the infringement?

Civil and administrative sanctions According to the preparatory works of the Act and case law, a compli- 20 What civil or administrative sanctions are there for cartel ance programme may lead to a reduction of a fine. When assessing activity? the level of a fine, it can be taken into consideration as a mitigating circumstance if an undertaking or a person has actively tried to ensure There are no civil or administrative sanctions under Danish law. all relevant employees' compliance with the Act through compliance However, under the Act, the Minister for Industry, Business and programs or similar measures. The compliance program must have Financial Affairs or the director-general of the DCCA may impose daily been in place at the time of the offence and the undertaking or person or weekly penalty payments in accordance with section 22 of the Act, if a must in fact have made efforts to ensure compliance with the competi- party fails to submit the information requested by the DCCA. tion rules. The Danish competition authorities may offer undertakings and individuals a fine in lieu of prosecution, subject to acceptance by the Director disqualification State Prosecutor. 23 Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or Guidelines for sanction levels officers? 21 Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty The Act does not warrant disqualification of individuals involved in levels normally established? What are the main aggravating cartel activity. and mitigating factors that are considered? Debarment Criminal sanctions may be imposed on both individuals and under- 24 Is debarment from government procurement procedures takings where an intentional or grossly negligent infringement of automatic, available as a discretionary sanction, or not competition law is established. available in response to cartel infringements? As of 1 March 2013, imprisonment may be imposed on individuals in cartel cases if their participation in the cartel has been intentional and Under section 137(1)(4) of the Danish Act on Public Procurement (based if the breach has been of a grave nature, especially owing to the extent of on Directive No. 24 of 26 February 2014 of the European Parliament and the infringement or its potentially damaging effects. The maximum term of the Council on Public Procurement), it is possible for a contracting of imprisonment is usually one and a half years but may be increased up authority to exclude a company from participation in a procurement to six years in case of aggravating circumstances. The courts have yet procedure if the contracting authority has sufficiently plausible indica- to impose the first prison sentence for cartel participation, but prison tions to conclude that the company has entered into agreements aimed sentences are, when relevant, expected to be imposed on members of at distorting competition and if the contracting authority has stated in the board or the management. the contract notice that participation in such anticompetitive behaviour When meting out the level of a fine, the gravity of the infringement leads to exclusion. and its duration must be taken into account (see section 23(5) of the Section 137(1)(4) does not only cover agreements with the purpose Act). Further, the level of the fine depends on the undertaking's world- of distorting competition specifically related to the procurement proce- wide group turnover. It is stated in the preparatory works of the Act dure in question. In principle, an infringement of section 6(1) of the Act that fines should not exceed 10 per cent of the undertaking's worldwide may lead to exclusion from participation in any procurement procedure. group turnover. The contracting authority has decision-making powers. The deci- The gravity of the infringement will be defined as either less grave, sion is usually a discretionary sanction but under certain circumstances grave or very grave. The indicative levels of the fines for each category debarment is mandatory. The usual duration of debarment is two years of gravity (before and after the increase in the level of fines of 1 March from the date when the relevant anticompetitive behaviour ended. The 2013) are: company has the right to take self-cleaning measures and demonstrate

94 Cartel Regulation 2021 © Law Business Research 2020 Bruun & Hjejle Denmark its reliability despite the existence of the said ground for exclusion. If the Only a limited number of cases on private damages claims self-cleaning measures are considered sufficient, the company cannot has been brought before the Danish courts. All of these cases have be excluded from the procurement procedure. concerned infringements that have taken place before the implemen- Any questions in this regard can be brought before the Danish tation of the Damages Act on 27 December 2016, and consequently, Complaints Board for Public Procurement. recent case law gives no guidance on the new damages claim regime. However, in general, the Danish courts have a conservative approach Parallel proceedings to damage claims. In the Electricity Cartel case from 2006, where the 25 Where possible sanctions for cartel activity include criminal municipality of Copenhagen claimed to have suffered a loss of 320,000 and civil or administrative penalties, can they be pursued Danish kroner, the District Court found that the counterfactual situa- in respect of the same conduct? If not, when and how is the tion without the cartel would only have resulted in a price three per choice of which sanction to pursue made? cent lower and fixed the damages at 50,000 kroner. In the Skandinavisk Motor Company case from 2008, the District Court dismissed the case Civil and administrative fines do not exist under Danish competition law. on the basis of an absence of actual data or calculations of the plain- The Danish competition authorities have the power to decide whether tiff’s loss. In the Cheminova A/S case from 2015, where Cheminova had agreements are in breach of competition law and whether agreements claimed damages in the amount of 47.2 million kroner, the Maritime must be reported to the State Prosecutor. There can be no parallel and Commercial High Court awarded damages of 10.71 million kroner proceedings on cartel activity for the same conduct by both the compe- without specifying the details of the calculation. tition authorities and the State Prosecutor. The competition authorities may choose to make their own deci- Class actions sion before reporting a case to the State Prosecutor or, alternatively, 27 Are class actions possible? If so, what is the process for such may report the case directly to the State Prosecutor for criminal inves- cases? If not, what is the scope for representative or group tigations without making their own decision. If the authorities have a actions and what is the process for such cases? confirmed suspicion of an infringement, the case may be reported directly to the State Prosecutor. Class actions for follow-on damage claims are possible under Danish law. Class actions are regulated in Chapter 23a of the Danish PRIVATE RIGHTS OF ACTION Administration of Justice Act, and, as a general rule, a class action is subject to the same procedure as other Danish court cases. Additionally, Private damage claims section 16 of the Competition Damages Act states that where several 26 Are private damage claims available for direct and indirect persons have raised claims for damages due to infringements of the Act purchasers? Do purchasers that acquired the affected or articles 101 or 102 of the Treaty on the Functioning of the European product from non-cartel members also have the ability to Union (TFEU), the Consumer Ombudsman may be appointed as a repre- bring claims based on alleged parallel increases in the sentative for the class for the purpose of recovering such damages prices they paid (‘umbrella purchaser claims’)? What level of under a class action. damages and cost awards can be recovered? Case law concerning class actions in competition cases is scarce. In January 2016, a Danish district court accepted a class action for The rules on private damage claims are outlined in the Competition damages by Foreningen for Dankortsagen against Nets regarding credit Damages Act, supplemented by the general principles and practice card fees. The class action is currently pending before the High Court concerning liability in tort. The Competition Damages Act ensures a right of Eastern Denmark. to full compensation for competition law infringements. The Competition Damages Act applies to infringements initiated after 27 December 2016. COOPERATING PARTIES Under Danish law, a claimant may be granted damages if the competition law infringement was committed with negligence or intent, Immunity if there is a causal and foreseeable loss and if there was absence of fault 28 Is there an immunity programme? If so, what are the basic by the claimant. elements of the programme? What is the importance of being Indirect purchaser claims are permitted, and thus, indirect ‘first in’ to cooperate? purchasers may make a damage claim for a competition law infringe- ment. Also, purchasers that acquired the affected product from The Danish Competition Act (the Act) provides for a leniency programme, non-cartel members may bring claims against the cartel members if the which is comparable to the leniency programme set out under EU law. before-mentioned requirements for bringing a damage claim are met. Thus, according to section 23a(1) of the Act, anyone who acts The passing-on defence may be used in damages cases arising in breach of section 6 of the Act or article 101 of the Treaty on the from a competition law infringement in accordance with the Competition Functioning of the European Union (TFEU) by entering into a cartel Damages Act. Thus, a tortfeasor may argue that the claimant did not agreement can apply for leniency and can under certain conditions be suffer any loss as any overcharge attributed to anticompetitive behav- granted immunity from a fine or from imprisonment for participating iour has been passed on to a subsequent purchaser. The burden of proof in a cartel. Withdrawal will only be granted if the applicant is the first lies with the tortfeasor. However, the burden of proof may shift during to have approached the authorities, and if the applicant has submitted the case if, for example, an indirect purchaser brings a damage claim. information which the authorities were not in possession of at the time If a claimant has passed on its loss, the claimant cannot be granted of the application. damages for the loss that has been passed on. It is further a condition according to section 23a(1) that either, As regards the level of damages, it is a fundamental principle that before the authorities have conducted any inspection or a search the claimant’s financial position before the occurrence of the damage regarding the matter in question, the submitted information must be the must be restored. The damages should include lost profit and interest, information to give the authorities specific grounds to initiate an inspec- but the level of damages must not be such as to enrich the claimant. tion, to conduct a search or to inform the police of the matter in question, Furthermore, the claimant is under a duty to mitigate his or her loss. or, after an inspection or search regarding the matter in question, the www.lexology.com/gtdt 95 © Law Business Research 2020 Denmark Bruun & Hjejle

submitted information must be the information that enables the authori- A marker system was recently introduced making it possible ties to establish an infringement in the form of a cartel. for a cartel participant to reserve its place in the queue while putting Section 23a(2) lays out further conditions, and withdrawal will be together a final leniency application (see section 23a (6) of the Act). The granted only if the applicant cooperates with the authorities throughout applicant must hand in a preliminary application for leniency and must the entire case, brings the participation in the cartel to an end no later subsequently deliver further documentation to the Danish Competition than by the time of the application, and has not coerced any other party and Consumer Authority (DCCA) within a fixed time frame. into participating in the cartel. There are no formal requirements as to the form of application to If the requirements set out in section 23a(1) of the Act are not met be submitted to the DCCA for leniency but using the application form (ie, if the leniency applicant is not the first one to apply for immunity), provided on the DCCA's website is recommended. the leniency application will be treated as an application for a reduction of the penalty (section 23a(3) of the Act). Thus, anyone acting in breach Cooperation of section 6 of the Act or article 101 TFEU by entering into a cartel agree- 32 What is the nature, level and timing of cooperation that ment will be granted a reduction of the fine that would otherwise have is required or expected from an immunity applicant? Is been imposed for participation in the cartel, provided the applicant there any difference in the requirements or expectations submits information about the cartel that constitutes significant added for subsequent cooperating parties that are seeking partial value compared to the information already in the authorities’ posses- leniency? sion, and provided the requirements in section 23a(2) of the Act, as described above, are satisfied. To date, there have been very few leniency cases in Denmark and no ministerial orders or the like have been issued. Nonetheless, Subsequent cooperating parties the competition authorities expect full cooperation throughout the 29 Is there a formal programme providing partial leniency for process, both by the first leniency applicant and by any subsequent parties that cooperate after an immunity application has been cooperating parties. The applicant must provide all information and made? If so, what are the basic elements of the programme? evidence on the cartel and, at any time, be available to provide a quick If not, to what extent can subsequent cooperating parties response to questions from the authorities (according to the guidelines expect to receive favourable treatment? on leniency).

According to section 23a(3) of the Act, a leniency application will be Confidentiality treated as an application for a reduction of the penalty if the leniency 33 What confidentiality protection is afforded to the immunity applicant is not the first one to apply for immunity (and therefore does applicant? Is the same level of confidentiality protection not meet the requirements set out in section 23a(1) to obtain immunity). applicable to subsequent cooperating parties? What Thus, anyone acting in breach of section 6 of the Act or article 101 TFEU information will become public during the proceedings and by entering into a cartel agreement will be granted a reduction of the when? fine that would otherwise have been imposed for participation in the cartel, provided the applicant submits information about the cartel that The Danish Act on Public Access to Documents in Public Files does not constitutes significant added value compared to the information already apply to cases and investigations carried out pursuant to the Act. in the authorities’ possession, and provided the requirements in section The Danish Public Administration Act applies to competition cases 23a(2) of the Act, as described above, are satisfied. and may provide a right of access to documents for the parties, which in cartel cases will be the addressee of the competition authorities’ deci- Going in second sion. Furthermore, under certain circumstances, the DCCA may choose 30 How is the second cooperating party treated? Is there an to provide a more extensive right of access to documents by applying a ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, principle of ‘extended openness’. how does it operate? Generally, the practice of the DCCA is to keep the identity of leni- ency applicants confidential. This practice was confirmed by the Appeal Under section 23a(5) of the Act, the applicant that goes in second (and is Tribunal in a case from 2018. Furthermore, the DCCA is reluctant to therefore unable to obtain full leniency) will receive a 50 per cent reduc- publish information that may lead to the identification of the leniency tion of the fine. The penalty reduction for the third cooperating party is applicants. 30 per cent, and, finally, the penalty reduction for subsequent applicants Confidentiality is, however, not guaranteed as the DCCA is required will be up to 20 per cent of the fine that would otherwise have been to publish judgments and penalty decisions, or a summary thereof, imposed on the party concerned for participating in the cartel. involving a fine or prison. If a case is referred to the State Prosecutor for Serious Economic and International Crime (the State Prosecutor), the Approaching the authorities question of confidentiality will be considered by the State Prosecutor. 31 Are there deadlines for initiating or completing an application Furthermore, the DCCA notifies the European Commission and national for immunity or partial leniency? Are markers available and competition authorities in other EU member states when receiving what are the time limits and conditions applicable to them? applications for leniency.

As such, there are no formal deadlines for the initiation or completion of a leniency application. However, it should be stressed that a leniency application must be submitted at a point in time when the authorities have not yet conducted an inspection or a search regarding the matter in question or at a time when the submitted information constitutes signifi- cant added value to an ongoing investigation. Moreover, the applicant must bring the participation in the cartel to an end before submitting the application.

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Settlements If it is clear to the DCCA that the defendant is liable to punishment, 34 Does the investigating or prosecuting authority have the the case will be referred to the State Prosecutor for Serious Economic ability to enter into a plea bargain, settlement, deferred and International Crime (the State Prosecutor) who will initiate crim- prosecution agreement (or non-prosecution agreement) or inal proceedings. This information is not necessarily disclosed to the other binding resolution with a party to resolve liability and defendant. However, according to the general procedural rules in penalty for alleged cartel activity? What, if any, judicial or criminal cases, if the State Prosecutor initiates criminal charges, the other oversight applies to such settlements? defendant has the right to be informed.

Plea bargaining as such does not exist under Danish law. However, it is, Representing employees to some extent, common for the DCCA and the State Prosecutor to enter 38 May counsel represent employees under investigation in into negotiations or talks with the undertakings involved regarding the addition to the corporation that employs them? When should level of the fine to be imposed. a present or past employee be advised to obtain independent Undertakings and individuals may accept a fine in lieu of prosecu- legal advice or representation? tion from the State Prosecutor (or from the DCCA, upon approval from the State Prosecutor), and in this way avoid criminal trial in open court. As a general rule, a counsel may represent both the undertaking under An undertaking that contacts the DCCA in order to settle a case will investigation and the employee unless the representation will create a normally be granted a reduction in the fine. conflict of interest. If there is a conflict of interest – or an immediate risk that a conflict of interest will arise – a present or past employee should Corporate defendant and employees be advised to seek independent legal advice. 35 When immunity or partial leniency is granted to a corporate It should always be considered carefully whether there is a conflict defendant, how will its current and former employees be of interest. treated? Multiple corporate defendants Under section 23a(12) of the Act, a leniency application from an under- 39 May counsel represent multiple corporate defendants? Does taking or an association will automatically cover current and former it depend on whether they are affiliated? board members, senior managers and other employees, provided that each person satisfies the requirements set out in section 23a(2). A counsel may represent multiple corporate defendants unless the A leniency application from an undertaking or an association representation implies a conflict of interest or an immediate risk of a must be filed by a person who can sign for the undertaking or asso- conflict of interest. ciation (eg, a director). The authorised person must expressly state that it is the company applying for leniency and if an application is to Payment of penalties and legal costs cover companies in a group, it must also be expressly stated in the 40 May a corporation pay the legal penalties imposed on its application. employees and their legal costs?

Dealing with the enforcement agency A corporation may pay the legal penalties imposed on its employees as 36 What are the practical steps for an immunity applicant well as their legal costs. Such payments will be taxed as income for the or subsequent cooperating party in dealing with the relevant employees. enforcement agency? Taxes A leniency application can be submitted to the DCCA or to the State 41 Are fines or other penalties tax-deductible? Are private Prosecutor. There are no formal requirements as to the application damages payments tax-deductible? itself; however, the DCCA has prepared a standard application. An application may be submitted to the DCCA in person, by letter or elec- Under Danish law, the general rule is that expenses incurred by an tronically through the website of the DCCA. undertaking are tax-deductible if the expenses are considered a natural In practice, the DCCA will generally invite the applicant to a meeting operating expense. As fines and other penalties are generally not in order to discuss the application. considered a natural operating expense, fines or other penalties are thus not tax-deductible. DEFENDING A CASE With regard to damages incurred as a consequence of a criminal offence, the question of whether such an expense is considered a Disclosure natural operating expense, and consequently, whether it is tax-deduct- 37 What information or evidence is disclosed to a defendant by ible, depends on a specific assessment. The courts will generally be the enforcement authorities? reluctant to accept any tax-deduction if the undertaking concerned has acted with intent or gross negligence. Usually, the defendant will receive a notice of concern (NOC) from the Danish Competition and Consumer Authority (DCCA) at the beginning International double jeopardy of the case. The NOC will contain the DCCA’s immediate opinion with 42 Do the sanctions imposed on corporations or individuals take regard to the claimed breach of the Danish Competition Act (the Act). into account any penalties imposed in other jurisdictions? In The opinion is non-binding for the DCCA. private damage claims, is overlapping liability for damages in The Danish Public Administration Act applies to competition cases other jurisdictions taken into account? and provides a right of access to documents for the defendant. The right of access includes all registered documents regarding the defendant, In general, companies and individuals sanctioned in a criminal excluding internal working papers and confidential material, eg compet- proceeding outside Denmark cannot be sanctioned for the same action in itively sensitive information. a subsequent Danish criminal proceeding (the ne bis in idem principle). www.lexology.com/gtdt 97 © Law Business Research 2020 Denmark Bruun & Hjejle

As regards private damage claims, it is a fundamental principle for on all three contracts and won the tender. In 2016, the Appeal Tribunal the assessment of damages that the claimant’s financial position must upheld the Council’s decision by finding that regardless of whether LKF be restored to as it was before the damage occurred. Consequently, any and Eurostar individually had the capacity and possibility to submit a compensation received by the claimant in another jurisdiction will be bid for all three districts, they could have submitted individual bids for taken into account in a subsequent Danish case. the individual districts, and consequently, they were actual or potential competitors. In August 2018, the Danish Maritime and Commercial High Getting the fine down Court, however, overturned the Council’s and Tribunal’s decisions and 43 What is the optimal way in which to get the fine down? found that LKF and Eurostar had not violated competition rules. The Court considered that the fact that LKF and Eurostar had the capacity The optimal way in which to get the fine down is to apply for leniency, to submit individual bids for the individual districts did not preclude assuming the conditions for leniency are fulfilled. them from entering into a and submit a joint bid for all three Other means to seek a reduction in the fine includes contacting the districts. Thus, the assessment of whether the joint bid had violated the DCCA to settle the case or to have a compliance programme in place. prohibition on anticompetitive agreements was based on whether LFK Undertakings that contact the DCCA in order to settle a case by paying and Eurostar could have submitted individual bids for all three districts a fine in lieu of prosecution will generally be granted a reduction of the (and not just one or two districts). In November 2019, the Supreme fine. Undertakings which had a compliance programme in place at the Court ruled in favour of the Appeal Tribunal. The Supreme Court agreed time of the offence, which continues to follow such a programme and with the Tribunal’s assessment that LKF and Eurostar were actual or which does in fact seek to ensure compliance with the competition rules potential competitors and that they had violated competition rules. may obtain a reduction of the fine. From now on, participants in a consortium in a public procurement must Section 82 of the Danish Criminal Code provides for a number of carefully assess whether they have the capacity to individually bid on mitigating circumstances that can be taken into consideration when the contract. meting out a sanction, the most relevant of which provides the basis for In two cases on information exchange of June 2020, the Council has the leniency programme. decided to refer the cases to the State Prosecutor for criminal proceed- ings. The Council found that Hugo Boss, a producer, supplier and retailer UPDATE AND TRENDS of articles of clothing in retail, had exchanged information on prices from January 2014 to November 2017 with Kaufmann and from December Recent cases 2014 to April 2018 with Ginsborg. Both Kaumann and Ginsborg were 44 What were the key cases, judgments and other developments retailers of articles of clothing from, among other brands, Hugo Boss. of the past year? The Council found that the exchange of information on prices, rebates etc constituted horizontal concerted practices subject to the prohibition In December 2018, the Danish Competition Council (the Council) in section 6(1) of the Act, and article 101(1) TFEU that could not benefit found that two competitors on the market for the sale of advertising from either block exemptions or the exemptions in section 8(1) of the Act space in outdoor media in Denmark had infringed section 6 of the or article 101(3) TFEU. Criminal prosecution from the State Prosecutor Danish Competition Act (the Act) and article 101 of the Treaty on the awaits appeals by the parties to the Appeal Tribunal’s ruling. Functioning of the European Union (TFEU). The two undertakings, Clear In August 2020, the competition authorities made investigations into Channel Danmark A/S and AFA JCDecaux A/S, had coordinated rebates the use of minimum resale prices on Happy Helper and Hilfr, two digital concerning media commissions, security compensation, information platforms enabling contact between providers and buyers of private compensation and cash discounts. The Council found that the objects of cleaning services. The cases are notable as they are the first to deal the agreements and concerted practices had been to restrict competi- with the question of whether self-employed individuals that sell services tion, and in November 2019, the Danish Competition Appeal Tribunal on digital platforms are subject to the Act. The Council found that the (the Appeal Tribunal) upheld the Council’s decision. The case is now providers of cleaning services on the digital platforms most likely are pending before the Maritime and Commercial High Court. to be considered self-employed individuals that are competitors on the In June 2019, the Danish Maritime and Commercial High Court platform. For this reason, Happy Helper and Hilfr made commitments upheld a decision from the Appeal Tribunal in a case regarding coordina- to the Council to cease the use of fixed hourly prices for the cleaning tion of prices on gas furnace maintenance subscriptions. HMN Naturgas services offered on the platforms, as they restricted the self-employed offered its end customers gas furnace maintenance subscriptions individuals’ possibility to set their own prices. Furthermore, the cases through independent plumbers, who also offered gas furnace mainte- are notable as they demonstrate, in practice, the increased focus of the nance subscriptions to end-users. The court found that the parties were Danish Competition and Consumer Authority (DCCA) on cases involving competitors on the market for maintenance subscriptions and that the digital platforms. parties had agreed on a raise in HMN’s end prices with the objective of making it possible for the independent plumbers to raise their prices as Regime reviews and modifications well. The case is noteworthy, as the agreement in fact caused a reduc- 45 Are there any ongoing or anticipated reviews or proposed tion of the total price for HMN’s customers. The case is pending before changes to the legal framework, the immunity/leniency the Eastern High Court. programmes or other elements of the regime? In November 2019, a case regarding road marking was decided in the third instance by the Supreme Court. In June 2015, the Council had On 1 May 2019, the DCCA established a Centre for Digital Platforms as found that the two companies, LKF Vejmarkering (LKF) and Eurostar a response to the government’s decision to strengthen the enforce- Danmark (Eurostar), had entered into an anticompetitive agreement in ment of the competition rules in relation to digital platforms. Thus, an submitting a joint bid through a consortium in a public procurement for increase in cases involving digital platforms can be expected due to the road marking. The public procurement consisted of three contracts on enhanced focus. three different parts of Denmark with the option of submitting a bid for In 2020, the DCCA’s guidelines on consortia under competition law just one of the contracts. The consortium of LKF and Eurostar, who was at is expected to be revised in correspondence with the Supreme Court’s the time the two largest contractors on the market for road marking, bid judgment in the case on road marking.

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Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

In March 2020, the Council issued a short notice addressing the compe- tition law issues that may arise in relation to covid-19. The notice Frederik André Bork [email protected] emphasised that the competition rules apply in times of crises. Specifically, regarding cartels, the notice recognised that it may be Olaf Koktvedgaard necessary to collaborate with competitors in order to produce enough [email protected] safety equipment, to ensure the supply of goods to all consumers or Søren Zinck to prevent the virus from spreading. It follows from the notice that the [email protected] DCCA will take the purpose of such agreements into careful considera- tion and usually deem these unproblematic under competition law. Nørregade 21 However, the notice (which is available online, in Danish) also 1165 Copenhagen states that the DCCA will keep a close eye on undertakings that seem Denmark to exploit this critical situation to co-ordinate prices, limit output, share Tel: +45 33 34 50 00 markets, share information or the like. The notice underlines that the Fax: +45 33 34 50 50 damage brought by a cartel may be even greater than usual in times of www.bruunhjejle.com crisis, as undertakings and consumers may be more vulnerable.

www.lexology.com/gtdt 99 © Law Business Research 2020 European Union

Mélanie Thill-Tayara and Marion Provost Dechert LLP

LEGISLATION AND INSTITUTIONS governing actions for damages under national law for infringements of the competition law provisions of member states and of the European Relevant legislation Union (the Damages Directive), which establishes a framework to 1 What is the relevant legislation? facilitate damages actions by victims of competition law infringements, the EC released guidelines for national courts on how to estimate the Cartels that have an effect on trade between member states of the passing-on of cartel overcharges to indirect purchasers. European Union are prohibited under article 101 of the Treaty on the On 11 December 2018, the European Parliament and the Council Functioning of the European Union (TFEU), which applies to all agree- adopted Directive No. 1/2019 to empower the competition authorities of ments and concerted practices that have as their object or effect the member states to be more effective enforcers and to ensure the proper prevention, restriction or distortion of competition within the internal functioning of the internal market (ECN+ Directive). Member states have market. The European Commission (EC), which is primarily in charge of until 4 February 2021 to transpose it. The ECN+ Directive seeks to harmo- enforcing article 101 TFEU at the European level, issued specific guide- nise the enforcement of competition law by NCAs by providing resources, lines in 2011 to help undertakings self-assess their horizontal cooperation fining tools and guarantees of independence. The ultimate aim of the agreements under EU competition law (Guidelines on the applicability of ECN+ Directive is to ensure that competition law is applied effectively article 101 TFEU to horizontal cooperation agreements, 2011/C 11/01). and consistently throughout the European Union, and that the applica- Although these guidelines are not intended to provide guidance as to tion of national competition laws by NCAs does not lead to a different what does or does not constitute a cartel, it nonetheless contains several outcome than the one that would have been reached under EU law. references to cartels as well as a specific chapter on the competitive assessment of information exchange that, depending on the circum- Substantive law stances and type of information exchanged, may be fined as cartels. 4 What is the substantive law on cartels in the jurisdiction?

Relevant institutions Article 101(1) TFEU prohibits: 2 Which authority investigates cartel matters? Is there a separate prosecution authority? Are cartel matters [All] agreements between undertakings, decisions by associations adjudicated or determined by the enforcement agency, a of undertakings and concerted practices that may affect trade separate tribunal or the courts? between member states and which have as their object or effect the prevention, restriction or distortion of competition within the Pursuant to Regulation No. 1/2003 of 16 December 2002 on the imple- internal market. mentation of the rules of competition (Regulation No. 1/2003), the EC has exclusive jurisdiction to both investigate – through its Directorate- A non-exhaustive list of prohibited practices is set out in this provision General for Competition (DG Competition) – and sanction cartels at the and includes agreements, decisions and concerted practices which, European level. Its decisions can then be appealed to the General Court directly or indirectly, aim to: of the European Union (GCEU) and, ultimately, the European Court of • fix prices or any other trading conditions; Justice (ECJ). • limit or control production, markets, technical development or investment; Changes • share markets or sources of supply; and 3 Have there been any recent changes, or proposals for change, • apply dissimilar conditions to equivalent transactions or making to the regime? the conclusion of contracts subject to acceptance of supplementary obligations. Except for the temporary framework communication adopted by the EC on 8 April 2020 to address the challenges resulting from the coronavirus Depending on the conduct, it may be considered as having either an outbreak, there have been no recent changes to the EU cartel regime. anticompetitive object or, in the alternative, an anticompetitive effect. However, it is worth recalling that two sets of rules of interest in Object restrictions are those which, by their very nature, entail a suffi- cartel matters were adopted in 2018 and 2019, regarding the devel- cient degree of harm to competition so that there is no need to examine opment of private enforcement actions and the powers of national their effects (see ECJ, 2 April 2020, Gazdasági Versenyhivatal c/ competition authorities (NCAs) to better implement the provisions of Budapest Bank Nyrt. e.a, C–228/18). In order to determine whether an Regulation No. 1/2003. agreement or concerted practice has an anticompetitive object, regard On 9 August 2019, following the transposition by all member must be had to the content of the agreement, its objectives, and the states of Directive No. 2014/104 of 26 November 2014 on certain rules economic and legal context of which it forms part. In practice, certain

100 Cartel Regulation 2021 © Law Business Research 2020 Dechert LLP European Union collusive behaviours, including information exchanges, are deemed by Extraterritoriality object restrictions, such as price-fixing or market sharing. 7 Does the regime apply to conduct that takes place outside the Under article 101(2) TFEU, agreements prohibited by article 101(1) jurisdiction (including indirect sales into the jurisdiction)? If TFEU shall be automatically void and unenforceable without there being so, on what jurisdictional basis? a need for a prior finding by the EC that they breach article 101(1) TFEU. However, article 101(3) TFEU provides that agreements whose Yes. Article 101 TFEU has an extra-territorial reach insofar as any efficiencies outweigh the anticompetitive effects can be exempted, conduct which has effects in the EU territory, irrespective of the nation- provided they meet certain criteria, and notably that they contribute to ality of the infringer and the country in which sales are booked, falls economic progress to the benefit of the end-consumer, without fore- within the jurisdiction of the European Commission (the EC). closing competition. It is nonetheless extremely rare that cartels qualify In this respect, according to the Guidelines on the method of setting for such exemption. fines imposed pursuant to article 23(2)a of Regulation No. 1/2003 (the Guidelines on the method of setting fines), the EC usually calculates the Joint ventures and strategic alliances fine imposed on an undertaking on the basis of ‘the value of the under- 5 To what extent are joint ventures and strategic alliances taking’s sales of goods or services to which the infringement directly or potentially subject to the cartel laws? indirectly relates in the relevant geographic area’ within the European Economic Area (EEA) (paragraph 13). By way of exception, however, the If a joint venture is not deemed a ‘concentration’ within the meaning of EC may ‘assess the total value of the sales of goods or services to which the EU merger control regulation, it will be considered as a cooperation the infringement relates in the relevant geographic area (wider than agreement, which must therefore be examined under article 101 TFEU. the EEA)’ (paragraph 18) to reflect both the aggregate size of the sales In practice, this will be the case of all non-full function joint ventures, concerned in the EEA and the relative weight of each undertaking in the (ie, those where the joint venture does not have sufficient resources to infringement. Thus, on several occasions, the EC took into account sales operate autonomously from its parent companies), which are therefore made by participants in the cartel outside the EEA in order to reflect their deemed parties to a cooperation agreement. participation when they had little or no sales within the EEA. This was While joint ventures may have pro-competitive effects, those which notably the case in the Power Cables decision (EC, 2 April 2014, Power directly or indirectly organise or facilitate price-fixing, market sharing or Cables, case AT.39610), where the EC’s approach to take into account limitation of output may be assessed under cartel laws. the sales made by the Japanese companies participating in the cartel While they can bring benefits to final consumers and are generally was recently validated by EU courts (General Court of the European exempt under article 101(3) TFEU, strategic alliances – such as the ones Union (GCEU), 2018, Viscas, T–422/14; ECJ, 2019, Viscas, C–582/18 P). in the air transport or food retail sectors – can also give rise to compe- tition concerns and be sanctioned under article 101(1) TFEU. The EC Export cartels has, for example, recently opened an investigation targeting two French 8 Is there an exemption or defence for conduct that only affects supermarkets chains for possible collusion on sales activities as part of customers or other parties outside the jurisdiction? a buying alliance they set up in 2014 (case AT.40466). There is no such exemption or defence under EU law. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Industry-specific provisions Application of the law 9 Are there any industry-specific infringements? Are there any 6 Does the law apply to individuals, corporations and other industry-specific defences or exemptions? entities? There are no industry-specific infringements. However, specific regu- Article 101 of the Treaty on the Functioning of the European Union lations or guidelines exist in some sectors that the EC wishes to (TFEU) only applies to undertakings. The notion of ‘undertaking’ has encourage. This is the case for instance in the maritime transport sector, been defined broadly in European Union case law, as any entity engaged where Regulations No. 246/2009 of 26 February 2009 and No. 906/2009 in an economic activity (ie, the sale of goods or provision of services), of 28 September 2009 exempt joint-service agreements between liner regardless of its legal status and the way in which it is financed shipping companies aimed at rationalising their operations by means of (European Court of Justice (ECJ), 1991, Höfner and Elser, C–41/90). technical, operational and/or commercial arrangements (described in Accordingly, in addition to individual companies operating in a market, shipping circles as ‘consortia’). Exemptions also apply in the agriculture the following entities have been considered as undertakings within the sector, where Regulation No. 2017/2393 provides for a derogation for meaning of competition law: some activities of producer organisations, such as joint sales. • professional orders; Specific regulations used to apply in other sectors, such as insur- • trade unions and professional associations; ance or air transport, but they expired or were repealed. • public agencies that do not exercise the prerogatives of a public authority; Government-approved conduct • sports federations and associations; and 10 Is there a defence or exemption for state actions, • entities working in the social sector. government-approved activity or regulated conduct?

In practice, this means that individuals can only be subject to competi- There is not, as such, a defence or exemption for a cartel that has been tion law provisions if they themselves are an undertaking, ie if they sell approved or encouraged by a state. For instance, in a 2008 preliminary goods or services on their own behalf. However, article 101 TFEU does ruling about a scheme under which some beef processors undertook not apply to individuals acting as employees of an undertaking. Please to leave the processing industry the ECJ considered that even if the note that the national legislation of some member states provides for scheme resulted from a study carried out at the request of the Irish criminal sanctions or administrative fines for employees that participate government, it amounted to a restriction of competition by object (ECJ, in an infringement of competition law. 20 November 2008, Beef Industry Development Society, C–209/07). www.lexology.com/gtdt 101 © Law Business Research 2020 European Union Dechert LLP

However, the Guidelines on the method of setting fines provide that the in which case there is no finding of infringement, commitment decisions basic amount of the fine imposed on undertakings that infringed article are not appropriate for cartel cases. 101 TFEU may be reduced to take into account mitigating circumstances, There is no legal deadline for the EC to complete cartel inquiries. such as where the anticompetitive conduct of the undertaking has been Though it is difficult to make general assumptions about the timing of authorised or encouraged by public authorities or by legislation. cartel cases, such proceedings usually last for several years. In 2017, following the GCEU annulling its first decision on proce- dural grounds, the EC readopted a cartel decision against 11 air cargo Investigative powers of the authorities carriers that were found to have infringed article 101 TFEU by operating 12 What investigative powers do the authorities have? Is court a price-fixing cartel. They were all granted a 15 per cent reduction in approval required to invoke these powers? fines on the ground that they had been encouraged to concert on prices with their competitors by the applicable regulatory regime (see EC, 9 Regulation No. 1/2003 of 16 December 2002 on the implementation November 2010 and 17 March 2017, Airfreight, AT.39258). of the rules of competition (Regulation No. 1/2003) sets out the main investigative powers of the EC. In particular, it has the power to INVESTIGATIONS • issue requests for information (under article 18); • take voluntary statements from natural or legal persons (under Steps in an investigation article 19); 11 What are the typical steps in an investigation? • carry out on-site inspections at the premises of the undertakings concerned (under article 20); and Initiation of the proceedings • where the circumstances require it, inspect the employees’ homes The European Commission (the EC) may take up a matter on its own and cars (under article 21). initiative or be contacted by any natural or legal person with a legiti- mate interest (eg, competitor, victim, or even co-perpetrator within the The EC may collect any information it deems necessary for the proper context of leniency). The EC may also launch a sector inquiry, which can conduct of its investigation. In addition, the EC may itself conduct the subsequently give rise to individual investigations (eg, the case of the inspection on the territory of a member state, or request an NCA to carry pay-for-delay investigations launched against Lundbeck and Servier, out the inspection on its behalf. that followed the EC’s sector inquiry in the pharmaceutical sector). Please note that the EC enjoys full discretionary prosecution powers, Request for information and can choose not to investigate a complaint, for instance, if it lacks Requests for information are the most common means used to carry interest from a European perspective or if it is already examined by a out an investigation and can be issued by the EC at any stage of the national competition authority (NCA). procedure. The EC may require the information either by simple request or by decision. Investigation Simple requests must be imperatively motivated and state the The proceedings are carried out by the investigation services of the legal basis and the purpose of the request, the information requested, EC. They can request oral or written information from the undertak- which must be necessary to establish a violation of article 101 TFEU, ings concerned, carry out on-site inspections at their premises, as well the time limit to provide the information (generally two to three weeks), as seal premises or business records. The companies investigated are and the sanctions in case false or misleading information is provided under a duty of cooperation, meaning that they are required to respond (which can reach up to 1 per cent of the total turnover of the undertak- to the investigation services’ questions, and to abide by the decisions ings concerned). authorising dawn raids, at the risk of sanctions. The EC can also hear Decisions forcing the provision of information may be adopted only other persons than the companies being investigated. Such interviews when, following a simple request, no information or incomplete informa- are not mandatory; however, after the subject has agreed to testify, he tion was supplied within the time limit fixed by the EC. It shall contain or she must cooperate and provide the EC with accurate information. the same information, and remind the addressee of its privilege against self-incrimination. If the undertaking fails to provide the requested infor- Adversarial phase of the procedure mation, the EC may impose periodic penalty payments not exceeding 5 The undertakings concerned receive a statement of objections in which per cent of the undertaking’s average daily turnover in the preceding the EC presents the objections raised against them, as well as the business year per day. factual evidence and legal arguments behind its analysis. The under- takings are then able to examine all elements contained in the EC’s Power to receive statements investigation file, to file observations in response to the statement of The EC can interview representatives of the undertakings concerned, objections and to request an oral hearing to present their comments as well as third parties. Interviews with third parties are conducted on on the case. Please note that, where applicable, discussions regarding a voluntary basis. a potential settlement procedure will be initiated by the EC before the The EC has a wide discretion in the conduct of interviews. It shall undertaking receives the statement of objections. If the undertaking only, at the beginning of the interview, state the legal basis and the accepts to settle, it will have to send a settlement proposal to the EC, purpose of the interview, and recall its voluntary nature. It shall also to which the latter will respond by sending a statement of objections inform the person interviewed of its intention to make a record of the setting out the content of the proposal. interview. In practice, the interview is always recorded. The presence of a lawyer is permitted. The officials of the relevant NCA can assist the EC. Decision Undertakings which are subject to an investigation do not normally If it concludes to the existence of an infringement of article 101 of the have a right to question witnesses testifying against it. In this respect, Treaty on the Functioning of the European Union (TFEU), the EC will the European Court of Justice (ECJ) ruled that: adopt a grounded decision prohibiting the conduct and imposing a fine and/or specific remedies. While in certain antitrust cases the EC may [As] the procedure before the Commission is purely an admin- deem appropriate to close its investigation with a commitment decision, istrative procedure, the Commission is not required to afford

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the undertaking concerned the opportunity to cross-examine a Finally, breaching a seal is considered a violation of the undertakings’ particular witness and to analyse his statements at the investiga- duty to cooperate and can result in a significant fine. In 2012, the ECJ tion stage. upheld the €38 million fine imposed by the EC on a German company for a broken seal (see ECJ, 22 November 2012, E.ON Energie AG, C–89/11). ECJ, 7 January 2004, Aalborg, joined cases C–204/00, C–205/00, Please note that although the EU courts confirmed that the EC has C–211/00, C–217/00 and C–219/00) extensive powers of investigation, these powers are not unlimited and due account must be given to the fundamental rights of the undertak- On-site inspections ings being investigated. In 2015, the ECJ clarified the scope of the EC’s On-site inspections may be conducted on two grounds: pursuant to ability to use the information it found during a dawn raid. In particular, a written authorisation or pursuant to a formal EC decision (a dawn it cannot go on ‘fishing expeditions’, which means that the informa- raid). The undertaking concerned is only obliged to accept the investiga- tion obtained during the investigation must not be used for purposes tion when it is carried out pursuant to a formal decision. However, in other than those indicated in the inspection warrant or decision (see practice, should the undertaking refuse an inspection, the EC will then ECJ, 18 June 2005, Deutsche Bahn, C–583/13 P). More recently, the generally order a dawn raid pursuant to a formal decision and may General Court of the European Union (GCEU) recalled that the EC needs request the support of officials of the member state within which the sufficiently strong evidence to reasonably suspect an infringement of inspection is to be conducted. competition law to justify a dawn raid. In exercising its powers, the EC Whether on the basis of a written authorisation or of a decision, the must therefore give due account to the rights of the undertakings being EC must specify the subject matter and purpose of the inspection, as raided and cannot, without sufficient evidence, order an inspection that well as the relevant penalties provided for in Regulation No 1/2003. In is, by its very nature, extremely intrusive (see GCEU, 5 October 2020, case of a formal decision, the EC must also specify the date on which it ITM, T–254/17 and Casino, T–249/17). is to begin as well state the right of the undertaking to have the decision reviewed by the ECJ. INTERNATIONAL COOPERATION When carrying out an inspection, either on the basis of a written authorisation or a decision, the EC may: Inter-agency cooperation • enter any premises, land and means of transport of undertakings 13 Is there cooperation with authorities in other jurisdictions? and associations of undertakings; If so, what is the legal basis for, and extent of, such • examine the books and other records related to the business, irre- cooperation? spective of the medium on which they are stored and not limited to documents already identified by the EC; Cooperation between the European Commission (EC) and other compe- • take or obtain in any form copies of or extracts from such books tition authorities takes place at two levels: bilateral and multilateral. or records; At the bilateral level, the European Union has signed cooperation • seal any business premises and books or records for the period covenants with a number of countries, based on dedicated competition and to the extent necessary for the inspection; and agreements, be they simple memoranda of understanding whereby • ask any representative or member of staff of the undertaking or the authorities can discuss legislation, share non-confidential informa- association of undertakings for explanations on facts or documents tion and request assistance from one another (eg, with Brazil, China, relating to the subject matter and purpose of the inspection and to India or Russia), or wider agreements for the enforcement of competi- record the answers. tion law including cooperation provisions, notification obligations with respect to enforcement activities that may affect each other’s interests Companies facing an inspection are under a duty to cooperate and may and exchanges of confidential information (eg, with Canada, Japan, be sanctioned if they fail to do so. In practice, the company is under the Mexico, Switzerland, South Korea or the US); and general trade agree- obligation to give access to all professional documents requested by the ments including competition provisions, (eg, with the UK in the context investigators stored in any medium or device (eg, PCs, laptops, smart- of Brexit, Chile, Colombia, Egypt, Israel, Jordan, Morocco and Ukraine). phones, USB drives), including electronic messages (eg, WhatsApp). At the multilateral level, the EC participates in the work of interna- EC officials can take copies of the documents, including by transferring tional organisations where competition issues are discussed, such as data on their computers. Usually, the EC selects the documents that the International Competition Network, which aims at providing anti- are relevant to the subject matter of its investigation directly on the trust agencies from developed and developing countries with a focused company’s premises. However, when the circumstances do not allow network for addressing practical antitrust enforcement and policy issues the EC to complete its inspection on-site, it may make copies of docu- of common concern. The EC also contributes to the work of the European ments in order to examine them later in Brussels (ECJ, 16 July 2020, Economic Area (EEA), the OECD and the World Trade Organization. Nexans, C–606/18). The EC also cooperates extensively with national competition The officials also have the power to ask oral questions and to authorities (NCAs) within the European Competition Network (ECN), request ‘explanations on facts or documents relating to the subject which aims at creating an effective mechanism to counter companies matter and purpose of the inspection’, as well as to record the answers. which engage in cross-border practices restricting competition. In The rights of defence of the undertakings concerned are limited accordance with Regulation No. 1/2003, it ‘transmit[s] to the competition during dawn raids, and mostly include: authorities of the member states copies of the most important documents • the right not to be subject to an unauthorised inspection, or to it has collected’ (article 11) and at the request of an NCA, it ‘shall provide refuse inspections conducted pursuant to simple authorisations; it with a copy of other existing documents necessary for the assessment • the right to be assisted by a lawyer, although the inspection can of the case’. Conversely, governments and competition authorities ‘shall start before a lawyer arrives; provide the Commission with all necessary information to carry out the • the right not to be required to produce legally privileged docu- duties assigned to it by [Regulation No. 1/2003]’ (article 18). ments (limited to correspondence with external lawyers admitted Furthermore, according to the 2004 EC Notice on Cooperation by the bar of a member state of the European Union); and within the Network of Competition Authorities, ECN members in charge • the right not to be required to incriminate themselves. of a case may refer a case to another NCA best placed to handle it. www.lexology.com/gtdt 103 © Law Business Research 2020 European Union Dechert LLP

Although in most instances the authority that receives a complaint or Burden of proof starts an ex officio procedure will remain in charge of the case, realloca- 16 Which party has the burden of proof? What is the level of tion can indeed be envisaged at the outset of a procedure. Reallocation proof required? to the EC itself will also usually occur for cases involving more than three member states. Pursuant to article 2 of Regulation No. 1/2003 of 16 December 2002 on the implementation of the rules of competition, the burden of proof Interplay between jurisdictions rests on the EC, which must establish the existence and duration of the 14 Which jurisdictions have significant interplay with your alleged infringement to competition law with sufficient evidence. The jurisdiction in cross-border cases? If so, how does this affect principle of legal certainty requires that, absent evidence directly estab- the investigation, prosecution and penalising of cartel activity lishing the duration of the infringement, the EC must rely on evidence in cross-border cases in your jurisdiction? relating to facts sufficiently close in time so that it can reasonably be assumed that the infringement was continuous and uninterrupted The most significant interactions of the EC in cross-border cases are between two specific dates. with NCAs of member states. Cooperation between the EC and NCAs, It is then up to the undertaking being investigated to demonstrate with regard to the distribution of powers regarding investigations, pros- that its conduct does not violate article 101(1) of the Treaty on the ecutions and fining, is specifically provided for in Regulation No 1/2003 Functioning of the European Union (TFEU). It may also decide to invoke (article 11) and relationships are organised by the 2004 EC Notice on a possible exemption which requires it to prove that it meets the condi- Cooperation within the Network of Competition Authorities. It was used tions of article 101(3) TFEU. for instance in the Prestressing Steel case, where the EC cooperated There is no specification as to the level of proof required. In prac- with the German competition authority, which provided it with docu- tice, while the EC is not bound by an obligation to adduce proof of an ments, including statements and audited reports that helped it prove infringement beyond reasonable doubt (General Court of the European the involvement of one specific undertaking in the cartel (EC, 30 June Union (GCEU), 8 July 2008, BPB, T–53/03), the GCEU indicated that: 2010, Prestressing Steel, COMP/38.344). There is also significant interplay between the NCAs themselves, [Any] doubt in the mind of the Courts of the European Union [. . within the framework of the ECN network. For instance, the French .] must operate to the advantage of the undertaking to which the competition authority (FCA) recently issued a decision sanctioning decision finding the infringement was addressed. a cartel in the fruit-compotes sector, after dawn raids conducted in GCEU, 24 March 2011, Viega, T–375/06 France and in the Netherlands in coordination with the Dutch competi- tion authority, under article 22 of Regulation No. 1/2003 of 16 December Circumstantial evidence 2002 on the implementation of the rules of competition, which led to the 17 Can an infringement be established by using circumstantial finding of additional evidence to that already provided by the leniency evidence without direct evidence of the actual agreement? applicant (FCA, 17 December 2019, Fruit-compotes, 19–D–24). The EC also often cooperates with the US Federal Trade Commission It is well-established in case law that direct evidence is rather scarce in and Department of Justice, through two agreements signed in 1991 and cartel cases. The EC can therefore rely on a ‘body of evidence’, (ie, a set 1998, which provide that both competition agencies notify each other of concurring elements to support its thesis). If, for example, a document when proceedings initiated by one competition authority are likely to refers only to certain facts mentioned in other elements of evidence, it is affect the other’s important interests. These agreements also provide not sufficient to compel the EC to set it aside. The GCEU held that: for exchanges of information, and mutual assistance when they have an interest in doing so and whenever their laws and resources enable [In] most cases, the existence of an anticompetitive practice or them to do so. agreement must be inferred from a number of coincidences and Above all, the 1998 agreement introduces the principle of ‘posi- indicia which, taken together, may, in the absence of another plau- tive comity’, under which one party may request the other party to sible explanation, constitute evidence of an infringement of the remedy anticompetitive behaviour which originates in its jurisdiction competition rules. but affects the requesting party as well. The agreement clarifies both GCEU, 12 July 2018, ABB, T–445/14 the mechanics of the positive comity cooperation instrument, and the circumstances in which it can be availed of. Please note that positive Appeal process comity provisions are rarely used in practice, as complainants usually 18 What is the appeal process? prefer to directly address the competition authority they consider to be best suited to deal with the alleged infringement. The decisions of the EC may be appealed to the GCEU, which has the power to annul the decision, dismiss the appeal, or adjust the fines. The CARTEL PROCEEDINGS decisions of the GCEU are themselves subject to appeal before the ECJ, which rules on points of law only. Decisions Undertakings that have lodged an appeal against the decision must 15 How is a cartel proceeding adjudicated or determined? either pay the fine provisionally or provide a bank guarantee equivalent to the amount of the fine plus interest, enforceable upon first call. The The European Commission (the EC) both investigates and adjudicates former vice-president of the EC, Joaquín Almunia, recalled in a 2010 on cartel matters. The final decision is taken by the EC’s College of information note that, though the management of fines guarantees and Commissioners. their safekeeping imposes an administrative burden on the EC that does not exist in the case of provisional payments, article 85a of the imple- menting rules for the Financial Regulation grants the undertakings the right to choose between these two options. The duration of proceedings before the GCEU depends on the complexity of the case. They generally last between 32 and 36 months,

104 Cartel Regulation 2021 © Law Business Research 2020 Dechert LLP European Union with an additional 12 to 18 months in the case of an appeal to the ECJ. each undertaking. Aggravating circumstances include the undertaking Please note that the EC may incur a financial liability in cases excessively instigating or leading the cartel, or it being previously sanctioned for lengthy proceedings, where such a length was unjustified and caused infringements of competition law. On the other hand, mitigating circum- damage to the undertakings concerned. In the Gascogne case, for stances include the undertaking’s cooperation with the investigation or instance, the applicants, which were convicted for their participation in a the fact that the infringement was encouraged or authorised by public cartel in the industrial bags sector, brought an action for damages before authorities or legislation. the GCEU against the EU for the excessive duration of the proceedings, Once adjusted, the EC verifies that the amount of the fine does not which lasted almost six years. The judges ruled in favour of the appli- exceed the legal maximum, (ie, 10 per cent of the undertaking’s world- cants at the lower court (see GCEU, 10 January 2017, Gascogne Sack wide turnover in the preceding business year). Deutschland, T–577/14), but the decision was overturned by the ECJ, Finally, where applicable, the amount of the fine is further which found that there was no sufficiently direct causal link between the decreased to take into account leniency proceedings (full immunity for violation of the reasonable time limit for judgment and the loss allegedly the first undertaking that came forward to the EC, and reductions of up suffered by the companies as a result of the payment of bank guar- to 50 per cent for the subsequent ones) or settlement proceedings (a antee fees, during the period by which that time was exceeded (ECJ, 13 fine reduction of 10 per cent). December 2018, Gascogne Sack Deutschland, C–138/17 and C–146/17). Compliance programmes SANCTIONS 22 Are sanctions reduced if the organisation had a compliance programme in place at the time of the infringement? Criminal sanctions 19 What, if any, criminal sanctions are there for cartel activity? The EC does not have to take into account compliance programmes put in place by an undertaking concerned when it sets the fine. In 2014, the There are no criminal sanctions for cartel activity at the EU level. GCEU clearly excluded that a compliance programme be regarded as a However, criminal sanctions might be imposed at the national level. mitigating circumstance. Indeed:

Civil and administrative sanctions [The] mere adoption by an undertaking of a programme of compli- 20 What civil or administrative sanctions are there for cartel ance with the competition rules cannot constitute a valid and activity? definite guarantee of future and continuing compliance by that undertaking with those rules, and consequently the mere exist- The EC derives its power to impose fines from article 23(2) of Regulation ence of such a programme cannot compel the Commission to No. 1/2003, which grants it a wide latitude in setting the amount of the reduce the fine on the ground that the objective of prevention fine, the only limit being that it shall not exceed 10 per cent of the under- pursued by the fine has already been at least partly achieved. taking’s total turnover in the preceding business year. In this respect, GCEU, 14 May 2014, Donau Chemie, T–406/09 it should be noted that this maximum limit applies to the undertak- ing’s group turnover and not only to the entity that participated in the Director disqualification infringement. 23 Are individuals involved in cartel activity subject to orders Please note that there has been a clear increase in the amount of prohibiting them from serving as corporate directors or fines in the recent years. The record-breaking total fine imposed in a officers? single case is €3,807 billion in the Trucks decision (2016/2017), where Daimler also received the highest individual fine ever of €1 billion for a There is currently no EU legislation prohibiting individuals involved in cartel infringement. cartel activity from serving as corporate directors or officers.

Guidelines for sanction levels Debarment 21 Do fining or sentencing principles or guidelines exist? If yes, 24 Is debarment from government procurement procedures are they binding on the adjudicator? If no, how are penalty automatic, available as a discretionary sanction, or not levels normally established? What are the main aggravating available in response to cartel infringements? and mitigating factors that are considered? While Regulation No. 1/2003 does not list debarment from government The EC first adopted its Guidelines on the method of setting fines in 1998 procurement procedures as a possible sanction, Directive No. 2014/24 and then updated them in 2006. They are self-binding on the EC, which on EU Public Procurement provides for a combination of mandatory must therefore follow them, but do not bind EU or national courts nor and facultative debarment when public authorities have sufficiently national competition authorities (NCAs). plausible indications to conclude that the undertaking has entered In practice, in setting the amount of a fine the EC first determines into agreements with other undertakings aimed at distorting compe- the basic amount of the fine, taking into account the value of the under- tition, which can be qualified as ‘grave professional misconduct’. The taking’s sales to which the infringement directly or indirectly relates in time period for debarment due to anticompetitive conduct is subject the relevant geographic area, to which it applies a percentage usually to national law and fixed at a maximum of three years by Directive ranging from 0 per cent to 30 per cent depending on the egregiousness 2014/24. It can be terminated earlier if measures taken by the under- of the infringement (in practice, this percentage has varied between 15 taking sufficiently demonstrate its reliability. The debarment rule is per cent and 18 per cent for cartels in the last five years), and a multi- seldom enforced throughout the EU. plying factor reflecting its duration. In cartel cases, the EC also applies an additional percentage ranging from 15 per cent to 25 per cent to this basic amount, to ensure the deterrent effect of the fine. The EC then adjusts this basic amount downwards or upwards, to take into account aggravating and mitigating circumstances for www.lexology.com/gtdt 105 © Law Business Research 2020 European Union Dechert LLP

Parallel proceedings Class actions 25 Where possible sanctions for cartel activity include criminal 27 Are class actions possible? If so, what is the process for such and civil or administrative penalties, can they be pursued cases? If not, what is the scope for representative or group in respect of the same conduct? If not, when and how is the actions and what is the process for such cases? choice of which sanction to pursue made? The Damages Directive does not provide for class actions. However, the Cartels are subject to both administrative penalties, which can exclu- EC issued a recommendation in 2013 inviting member states to adopt sively be imposed by the EC, as well as potential civil damages, which measures at the national level by 26 July 2015 favouring recourse to can be decided by any national court. In this respect, public enforcement class action mechanisms. As class actions are still not available every- and private enforcement are considered as being complementary one where throughout the European Union, the EC issued a draft directive to another, and together act as a deterrent tool to cartel infringements. on 11 April 2018 as part of its ‘ for Consumers’ initiative, which, if adopted, will introduce a European class action mechanism for PRIVATE RIGHTS OF ACTION damages claims related to anticompetitive behaviours. The European Parliament and the Council reached a provisional political agreement Private damage claims regarding the proposal on 22 June 2020. 26 Are private damage claims available for direct and indirect According to the planned mechanism, only qualified entities desig- purchasers? Do purchasers that acquired the affected nated in advance by member states or created on an ad hoc basis for product from non-cartel members also have the ability to a specific action will be entitled to bring damages claims class actions, bring claims based on alleged parallel increases in the provided that they comply with strict obligations regarding the source of prices they paid (‘umbrella purchaser claims’)? What level of their funding. The draft directive provides that member states should be damages and cost awards can be recovered? able to choose between opt-in and opt-out mechanisms to best respond to their legal tradition. Any third party – being a direct purchaser or indirect purchaser – who has suffered loss as a result of a cartel can sue one or several of its COOPERATING PARTIES participants for damages before the national courts of member states. This right is enshrined in EU case law, which has long recognised Immunity that, where there is a causal link between the infringement of competi- 28 Is there an immunity programme? If so, what are the basic tion law and the harm suffered, the victim may seek compensation for elements of the programme? What is the importance of being that harm (ECJ, 20 September 2001, Courage and Crehan, C–453/99). ‘first in’ to cooperate? The ECJ clarified that in the absence of EU rules governing the matter, it was for the domestic legal systems of each member state to prescribe The EC 2006 Notice on Immunity from fines and reduction of fines in the detailed rules governing the exercise of that right, provided that the cartel cases (the Leniency Notice) provides for a leniency mechanism principles of equivalence and effectiveness are observed (ECJ, 13 July under EU law. 2006, Manfredi, joined cases C–295/04 to C–298/04). To benefit from full immunity from fines (and softening of liability Victims are entitled to full compensation of their damage, which in damages claims), an undertaking must be the first to denounce includes actual loss as well as loss of profits, plus the payment of the cartel and must provide evidence allowing the EC to ‘carry out a interest. However, there is no such thing as punitive or multiple targeted inspection in connection with the alleged cartel; or find an damages under EU law. infringement of article 81 EC [now 101 TFEU] in connection with the To ensure an effective system of private enforcement throughout alleged cartel’ (paragraph 8). The undertaking must also cooperate with the European Union, the European Parliament and the Council adopted the EC throughout the procedure, and in particular should supply it with Directive No. 2014/104 of 26 November 2014 on certain rules governing accurate information. In addition, the company must terminate its partic- actions for damages under national law for infringements of the compe- ipation in the alleged cartel without delay. It must not have destroyed, tition law provisions of the member states and of the European Union falsified or concealed evidence of the cartel, nor have disclosed its (the Damages Directive), which aims at facilitating private enforcement intention to apply for leniency or the contents of its application (except actions by victims of competition law infringements. to an NCA). Finally, a company may be deprived of immunity if it has In particular, the Damages Directive sets forth several presump- forced one or more others to join or remain in the cartel. tions to facilitate the compensation of victims of cartel infringements, In addition, the EC has introduced whistleblowing mechanisms. such as a presumption that prohibition decisions constitute irrevocable In 2017, it put in place an online anonymous whistleblowing form evidence of a wrongdoing or that cartels cause harm. In addition, while allowing any individual to sound the alert about the existence of a recognising the passing-on defence, the Damages Directive reverses cartel. Furthermore, Directive No. 2019/1937 on the protection of the burden of proof that now lies on the infringer: with respect to direct whistleblowers, adopted in 2019, provides for the creation of reporting purchasers, the Damages Directive establishes a presumption that channels within companies and administrations, a hierarchy of internal cartel overcharges have not been passed on to the indirect purchasers; and external communication channels, the protection of a large number conversely, with respect to indirect purchasers, it establishes a of profiles (eg, employees, including civil servants, shareholders, volun- presumption that overcharges have been passed on to them. teers, trainees, etc) and measures to protect whistleblowers from Although the Damages Directive may have seemed to take reprisals. Please note that member states have until 17 December 2021 particular account of ‘follow-on’ actions, its provisions are also appli- to transpose this Directive. cable to ‘standalone’ actions, brought in the absence of any prior decision by the EC or an NCA.

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Subsequent cooperating parties Cooperation 29 Is there a formal programme providing partial leniency for 32 What is the nature, level and timing of cooperation that parties that cooperate after an immunity application has been is required or expected from an immunity applicant? Is made? If so, what are the basic elements of the programme? there any difference in the requirements or expectations If not, to what extent can subsequent cooperating parties for subsequent cooperating parties that are seeking partial expect to receive favourable treatment? leniency?

Undertakings that do not qualify for full immunity may still be granted All immunity applicants, regardless of their rank, must provide compel- a reduction to their fine. They must provide evidence that has an ‘added ling evidence to the EC and fully cooperate with the EC’s investigators value with respect to the evidence already in the Commission’s posses- throughout the procedure. The EC will grant immunity from fines to the sion’, (ie, that strengthens by its nature and/or degree of precision the first leniency applicant, provided that it submits evidence and infor- EC’s ability to establish the existence of the alleged cartel). In terms of mation which, in the EC’s view, will enable it to carry out a targeted cooperation, subsequent applicants must satisfy the same level of coop- inspection in connection with the alleged cartel or to find an infringe- eration as the first-in. The reduction ranges from 30 per cent to 50 per ment of article 101 TFEU. Any subsequent applicant must bring cent for the second undertaking, 20 per cent to 30 per cent for the third additional evidence with significant added value. and up to 20 per cent for the others. There is currently no ‘immunity Applicants must also terminate their participation in the alleged plus’ or ‘amnesty plus’ option. cartel without delay, and refrain from disclosing their intention to apply for leniency or their application to anyone, except to an NCA. Going in second Applicants that have destroyed, falsified or concealed evidence of 30 How is the second cooperating party treated? Is there an the cartel, or forced one or more others to join or remain in the cartel, ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, will not be eligible for leniency. how does it operate? Confidentiality Second cooperating parties must satisfy the same level of cooperation 33 What confidentiality protection is afforded to the immunity as the first-in. They may benefit from reductions in the fine ranging from applicant? Is the same level of confidentiality protection 30 per cent to 50 per cent for the second undertaking, 20 per cent to applicable to subsequent cooperating parties? What 30 per cent for the third and up to 20 per cent for the others, provided information will become public during the proceedings and that they bring additional compelling evidence with significant added when? value. There are no ‘immunity plus’ or ‘amnesty plus’ treatments avail- able under EU law. Information and documents communicated to the EC under the Leniency Notice are confidential. In practice, the following will be deemed Approaching the authorities confidential: 31 Are there deadlines for initiating or completing an application • documents containing business secrets; for immunity or partial leniency? Are markers available and • documents that would significantly harm a person or an under- what are the time limits and conditions applicable to them? taking if they were to be disclosed; and • internal documents of the EC or of NCAs, such as minutes of meet- The leniency applicant should contact the Directorate-General of ings with leniency applicants. Competition (DG Competition) before the statement of objections has been issued. However, in practice, most leniency applications seeking Any subsequent disclosure, as may be required by the proceedings, an immunity from a fine (which is only available to the first leniency will be made in accordance with the rules relating to access to files (ie, applicant) are made either before the EC starts an investigation (in after deletion or replacement of business secrets and other confidential which case they form the basis for initiating an investigation) or upon information, as provided for by the Notice on the rules for access to the the initiation of an investigation. Commission file of 22 December 2005). The undertaking must submit a formal application for immunity The Leniency Notice further provides that any written statement including relevant statements and evidence. According to the Leniency made to the EC in relation to the leniency application forms part of the Notice, it can also present this information in hypothetical form, ‘in which EC’s file and may not, as such, be disclosed or used by the EC for any case the undertaking must present a detailed descriptive list of the other purpose than the enforcement of article 101 TFEU. Therefore, they evidence it proposes to disclose at a later agreed date’ (paragraph 16). may not serve as evidence in matters of private enforcement. Please note that the EC has set up a marker system ‘protecting an immunity applicant’s place in the queue for a period to be specified on Settlements a case-by-case basis in order to allow for the gathering of the neces- 34 Does the investigating or prosecuting authority have the sary information and evidence’ (paragraph 15). The marker system is ability to enter into a plea bargain, settlement, deferred typically used during dawn raids or at the very beginning of an investi- prosecution agreement (or non-prosecution agreement) or gation, insofar as it allows the undertaking to file for leniency without other binding resolution with a party to resolve liability and having to immediately provide supporting evidence. If the undertaking penalty for alleged cartel activity? What, if any, judicial or provides all the documents within the deadline set by the EC, the infor- other oversight applies to such settlements? mation and evidence provided will be deemed to have been submitted on the date when the marker was granted. Following an extensive public consultation, in 2008 the EC adopted Regulation No. 622/2008 in order to set up a European settlement procedure, as well as a Communication to clarify its application. Under the settlement procedure, parties which admit having participated in a cartel infringement can obtain a 10 per cent reduction in the fine. The settlement procedure can be combined with a leniency application. www.lexology.com/gtdt 107 © Law Business Research 2020 European Union Dechert LLP

In practice, while undertakings may express their interest for a Dealing with the enforcement agency settlement, the initiative rests with the EC, which has a discretionary 36 What are the practical steps for an immunity applicant power to decide whether a case is suitable or not for settlement. When or subsequent cooperating party in dealing with the it considers having recourse to the settlement procedure, the EC sends enforcement agency? a letter to all parties informing them of its decision to consider a poten- tial settlement and requesting them to express their interest in such a The immunity applicant and subsequent leniency applicants must procedure. contact the DG Competition before the statement of objections has been Each party has a period of at least two weeks to decide whether issued, and submit a formal application including relevant statements or not to enter into the settlement procedure, without this implying any and evidence. They can also present this information in hypothetical admission of having participated in an infringement or of being liable for form, ‘in which case the undertaking must present a detailed descrip- it at this stage. If the party decides to enter into the settlement proce- tive list of the evidence it proposes to disclose at a later agreed date’ dure, bilateral discussions open with the EC. Please note that a party (paragraph 16 of the Leniency Notice). that wishes to enter into such procedure and at the same time to apply The undertaking must, without delay, terminate their participation for leniency must do both within the same deadline. in the alleged cartel and cooperate fully with the EC’s investigation team If the discussions are fruitful, the party will be granted at least 15 and supply it with relevant information. working days to submit a conditional settlement proposal to the EC, in which it acknowledges and explains in detail its responsibility in the DEFENDING A CASE implementation of the infringement. Upon the party’s request, the EC may allow those settlement submissions to be provided orally. In such Disclosure cases, settlement submissions will be recorded and transcribed at the 37 What information or evidence is disclosed to a defendant by EC’s premises. In response, the EC sends a streamlined statement of the enforcement authorities? objections endorsing the party’s proposal, to which the latter will have at least two weeks to reply, confirming that it reflects its submission. The information disclosed to the defendant depends upon the type of Finally, the College of Commissioners of the EC adopts the settle- procedure: standard or settlement procedure. ment decision, which is generally a lighter version of a decision adopted Under the normal procedure, the statement of objections must be pursuant to the normal procedure, in that it contains far fewer elements issued in writing and contain all the factual and legal elements that the than a full probe decision. The EC can terminate the settlement proce- EC intends to use in its decision. Thus, the nature, geographical area, dure at any time and retains the right to change its position until the gravity and duration of the infringements identified by the investigators, final decision is made. as well as the liability of each company, must be specified. However, the Although the settlement procedure was initially scarcely used, EC does not have to mention the range of potential fines. Each under- there have now been 34 cartel settlements. By way of example, the last taking concerned must be able to understand clearly the infringement five decisions of the EC imposing sanctions relating to article 101 TFEU with which it is charged and may have access to the case team’s file, infringements involved settlement proceedings. but not to internal documents and documents containing confidential Lastly, if the settlement procedure is not subject to the agree- information or relating to business secrets. ment of all of the undertakings involved, the EC is faced with a hybrid Conversely, under the settlement procedure the parties are procedure, whereby certain undertakings settle while others decide to informed in advance of the objections that the EC intends to raise defend themselves. This was notably the case in the Trucks cartel case, against them, as well as of the maximum amount of the potential fine where one participant to the cartel was prosecuted under the standard that may be imposed on them. They have access to all the elements on procedure (EC, 27 September 2017, Trucks, AT.39824), while the others which the EC intends to rely during the procedure. The parties may be settled with the EC (EC, 19 July 2016, Trucks, AT.39824). In 2017, the granted access to the file if the statement of objections does not corre- GCEU held that in such cases the EC must take all necessary measures spond to the content of their submissions. to guarantee the presumption of innocence of the undertaking which has decided not to enter into a settlement. To do so, it must take the Representing employees necessary measures when: 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should [It] is not in a position to determine the liability of the undertak- a present or past employee be advised to obtain independent ings participating in the settlement without also taking a view on legal advice or representation? the participation in the infringement of the undertaking which has decided not to enter into a settlement [including] possible The EC does not impose fines on individuals. adoption on the same date of several decisions relating to all the undertakings concerned by the cartel. Multiple corporate defendants GCEU, 10 November 2017, Icap, T–180/15 39 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated? Corporate defendant and employees 35 When immunity or partial leniency is granted to a corporate Conflicts of interests are dealt with at the national level, in accordance defendant, how will its current and former employees be with each country’s laws. treated? This principle was recalled by the ECJ in 2018, in a case where the GCEU allegedly erred in law by dismissing a breach of a ‘principle The EC does not impose penalties on individuals, there is thus no of prohibition of double representation’. According to the applicant, the such immunity. GCEU should have declared the evidence submitted by one party inad- missible, since its lawyers had a conflict of interest in respect of one of their other clients in the same case. The ECJ ruled that:

108 Cartel Regulation 2021 © Law Business Research 2020 Dechert LLP European Union

[The] question whether a lawyer has complied with his obliga- (EC) investigation­ and the annulment of an on-site inspection, on the tions under national law and rules governing conduct in agreeing ground that the inspectors examined documents marked as legally to represent a client in a case liable to give rise to a conflict privileged (ECJ, 17 October 2019, Alcodis/Alcogroup, C–403/18). of interest in respect of another client does not fall within the On 7 November 2019, the GCEU found that the EC had wrongfully scope of the competence conferred on the Commission for the sanctioned Campine for a single and continuous infringement that purposes of applying articles 101 and 102 TFEU. lasted three years, while it had not established its participation in the ECJ, 1 February 2018, Schenker, C–263/16 cartel for two 11-months periods (GCEU, 7 November 2019, Campine, T–240/17). A counsel may therefore represent multiple corporate defendants On 12 December 2019, the ECJ ruled that any legal person, if their interests are aligned and if there is no risk of conflict in the including a local authority (in this case, an Austrian Land) is able to future. However, in practice, unless they form part of the same group, validly claim compensation, provided it establishes it has suffered each investigated company is usually represented by its own counsel. damage resulting from a cartel (ECJ, 12 December 2019, Otis GmbH, C–435/18). Payment of penalties and legal costs On 2 April 2020 a preliminary ruling of the ECJ (as well as the 40 May a corporation pay the legal penalties imposed on its 5 September 2019 opinion of Advocate General Bobek), recalled and employees and their legal costs? clarified the criteria applicable for determining whether an agree- ment can be considered a restriction of competition by object (ECJ, The EC does not impose fines on individuals. 2 April 2020, Gazdasági Versenyhivatal c/ Budapest Bank Nyrt. e.a, C–228/18). Taxes On 14 May 2020, the ECJ partly annulled the GCEU’s judgment 41 Are fines or other penalties tax-deductible? Are private dismissing NKT Verwaltung’s appeal against the €3.8 million fine damages payments tax-deductible? imposed on it by the EC for its participation in the ‘cable’ cartel. The ECJ found that NKT’s rights of defence had been breached, insofar as Tax consequences of fines and other penalties are dealt with at the the EC indicated in the statement of objections that it would exclude national level, as are private damages payments. Please note however from the scope of the infringement activities relating to certain sales that the EC published amicus curiae observations in 2012, stating that in non-EU or non-EEA countries, but nonetheless took account of them allowing these fines to be tax-deductible would deprive them of their for the calculation of the fine (ECJ, 14 May 2020, NKT Verwaltung, deterrent effect (EC, 8 March 2012, written observations in Case No. C–607/18). 5285, Tessenderlo Chemie). On 16 July 2020, the ECJ ruled that the EC may make copies of documents during a dawn raid in order to examine them later in International double jeopardy Brussels (ECJ, 16 July 2020, Nexans, C–606/18). 42 Do the sanctions imposed on corporations or individuals On 5 October 2020, the GCEU partially annulled decisions adopted take into account any penalties imposed in other by the EC to authorise dawn raids at the premises of two French jurisdictions? In private damage claims, is overlapping supermarkets chains, on the grounds that it lacked sufficiently strong liability for damages in other jurisdictions taken into evidence to reasonably suspect an infringement to competition law account? and justify on-site inspections (GCEU, 5 October 2020, ITM, T–254/17 and Casino, T–249/17). In principle, the EC does not take into account penalties imposed in On 28 October 2020, the ECJ dismissed an applicant’s challenge to non-member states’ jurisdictions when determining sanctions for a a GCEU decision that upheld the EC’s Power Cables cartel decision of cartel. The ECJ recalled in 2015 that neither the principle non bis in 2014, ruling that the undertaking failed to rebut the presumption that idem nor any other principle of law obliges the EC to take account of it exercised decisive influence over its subsidiary. The GCEU recalled proceedings and penalties to which an undertaking has been subject that the EC can presume ‘decisive influence’ and thus liability, where a in non-member states (see ECJ, 9 July 2015, InnoLux, C–231/14). parent company holds all or almost all of the shares in its subsidiary (ECJ, 28 October 2020, Pirelli, C–611/18). Getting the fine down Moreover, the most recent cartel decisions issued by the EC 43 What is the optimal way in which to get the fine down? include decisions in the sectors of closure systems (EC, 29 September 2020, AT.40299), ethylene (EC, 14 July 2020, AT.40410) and canned The leniency procedure is the best option available to the parties to vegetables (EC, 27 September 2019, AT.40127), where it imposed fines obtain a reduction in the fine, which can go up to full immunity for the totalling €18 million, €260 million and €31.6 million respectively. These first applicant. The settlement procedure is the other option available decisions have not yet been made public. to the parties, allowing them to benefit from a 10 per cent reduction of their fine in exchange for their cooperation and recognition of liability, Regime reviews and modifications which allows the EC to achieve procedural gains. 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency UPDATE AND TRENDS programmes or other elements of the regime?

Recent cases No. 44 What were the key cases, judgments and other developments of the past year?

On 17 October 2019, the European Court of Justice (ECJ) upheld a decision of the General Court of the European Union (GCEU) dismissing a request for the suspension of a European Commission www.lexology.com/gtdt 109 © Law Business Research 2020 European Union Dechert LLP

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

On 8 April 2020, the EC published a Notice on a Temporary Framework (the Temporary Framework Notice) to provide guidance on anticom- Mélanie Thill-Tayara [email protected] petitive practices for companies cooperating to respond to emergency situations related to the current coronavirus pandemic. This Temporary Marion Provost Framework Notice allows competing undertakings to coordinate their [email protected] actions in order to address shortages of essential products, whether or not they are used directly in the treatment of coronavirus patients, 32 rue de Monceau provided they do not go beyond what is strictly necessary to address the Paris, 75008 difficulties raised by the current health situation. France The EC thus stated that it would deem admissible, provided that Tel: +33 1 57 57 80 80 they are accompanied by sufficient guarantees to prevent exchanges www.dechert.com of commercially sensitive information, direct or indirect coopera- tion aimed at: • coordinating the transport of input materials; • contributing to the identification of essential medicines for which there is a risk of shortage; • aggregating information on production capacities; or • forecasting demand at the level of a member state.

However, such exchanges must be accompanied by sufficient safe- guards to prevent, for example, companies sharing commercially confidential information. In addition, the EC temporarily reinstated the mechanism of comfort letters, which were issued before 2003 but had since been abandoned in favour of a self-examination by companies of the compatibility of their behaviour with competition law. A first comfort letter was issued on 8 April 2020, concerning a cooperation project between pharmaceutical companies to increase and optimise the production of several speciali- ties necessary for the treatment of coronavirus patients. The EC made clear that there would be no relaxation of competition law enforcement during the pandemic, and that it would not tolerate any behaviour taking advantage of the crisis or using it as a cover to set up anticompetitive collusion, in particular by setting prices above market level or limiting production. Finally, the EC indicated that such relief would not protect undertakings against private litigation, whereby a claimant would seek to recover losses suffered as a result of competi- tion law violations.

110 Cartel Regulation 2021 © Law Business Research 2020 Finland

Mikael Wahlbeck, Antti Järvinen and Niko Hukkinen Frontia Attorneys Ltd

LEGISLATION AND INSTITUTIONS The SAC is the ultimate appellate body in competition cases. The SAC is the second and final instance of appeal for the FCCA’s decisions Relevant legislation and the first and final instance of appeal for the Market Court’s deci- 1 What is the relevant legislation? sions imposing fines. In addition to the three main institutions, the regional state admin- The relevant legislation is set out in the Finnish Competition Act istrative agencies have powers to investigate competition infringements (948/2011) (the Competition Act). The Competition Act contains a prohi- in cooperation with the FCCA. In practice, however, it is almost exclu- bition against anticompetitive agreements and concerted practices, a sively the FCCA that bears responsibility for the investigation of prohibition against abuse of dominant position as well as provisions on suspected cartels. merger control. The current Competition Act entered into force on 1 November Changes 2011 following a substantial review of the old law. The material provi- 3 Have there been any recent changes, or proposals for change, sions of the Competition Act are fully harmonised with articles 101 and to the regime? 102 of the Treaty on the Functioning of the European Union (TFEU). Related legislation includes provisions on the functions and powers The Finnish competition law was more comprehensively reformed of the authorities, such as the Act on the Finnish Competition and through the introduction of the new Competition Act that entered into Consumer Authority (661/2012), the Decree on the Finnish Competition force on 1 November 2011. The new Competition Act brought Finnish and Consumer Authority (728/2012) and the Market Court Act (99/2013). competition law even more into line with that of the EU and introduced The Finnish Competition and Consumer Authority (FCCA) has also some changes to, for example, the provisions concerning penalty issued a set of guidelines relating to the application of the Competition payments. There have since been a few amendments to the Act, but Act, including guidelines on leniency and penalty payments. these have not affected cartel matters. The Finnish Act on Antitrust Damages Actions came into effect on 26 Relevant institutions December 2016 after a legislative process following the entry into force 2 Which authority investigates cartel matters? Is there of the EU Directive on Antitrust Damages Actions on 26 December 2014. a separate prosecution authority? Are cartel matters The most recent amendments to the Competition Act entered into adjudicated or determined by the enforcement agency, a force in 2019, including changes to the investigative powers of the FCCA. separate tribunal or the courts? For example, the FCCA now has the right to continue dawn raid inspec- tions of electronic information at the FCCA’s premises. The main institutions involved in cartel matters are: The Ministry of Employment and the Economy set up a working • the FCCA, which is responsible for investigating competition group on 14 June 2019 to prepare amendments to the Competition Act restrictions; necessitated by the Directive (EU) 2019 /1 to empower the competition • the Market Court, which may, for example, impose fines on under- authorities of the member states to be more effective enforcers and to takings upon the FCCA’s proposal; and ensure the proper functioning of the internal market (ECN+ Directive). • the Supreme Administrative Court (SAC), to which the decisions of The working group rendered its report in the form of a draft govern- the Market Court can be appealed. ment bill in May 2020. Proposed amendments relate to, among other things, structural remedies for violations of articles 101 and 101 of the The FCCA is an administrative authority that operates under the Ministry TFEU and the equivalent provision of the Competition Act, fines for of Employment and the Economy. It was established at the beginning infringement of procedural rules and sanctions that can be imposed on of 2013 by joining the operations of the Competition Authority and the trade associations and their members. In addition, the working group Consumer Agency. The FCCA is headed by a Director General and it has proposes guidelines on the calculation of fines that would be binding for five units dealing with competition matters. Unlike, for example, the the FCCA. The deadline for national implementation is 4 February 2021. European Commission, the FCCA does not itself have the authority to impose fines on undertakings for competition infringements but shall Substantive law make a penalty payment proposal to the Market Court. 4 What is the substantive law on cartels in the jurisdiction? The Market Court is a special court for market law, competition law, public procurement and civil IPR cases in Finland. It has a dual role in The prohibition against anti-competitive agreements and concerted competition restriction matters. On the one hand, it is the first instance practices, section 5 of the Competition Act, corresponds to article 101(1) ruling on the FCCA’s penalty payment proposals, and on the other hand, TFEU with the exception that it does not require that trade between the it is the first instance of appeal for decisions made by the FCCA. EU member states is affected. It prohibits all agreements and concerted www.lexology.com/gtdt 111 © Law Business Research 2020 Finland Frontia Attorneys Ltd

practices between undertakings or associations of undertakings, which Application of the law have as their object or effect the prevention, restriction or distortion of 7 Does the law apply to individuals, corporations and other competition. Section 5 contains a list of practices that are in particular entities? prohibited: • directly or indirectly fixing purchase or selling prices or any other The Finnish Competition Act (948/2011) (the Competition Act) applies trading conditions; to economic activity carried out by business undertakings. According • limiting or controlling production, markets, technical development to section 4 of the Competition Act, the term business undertaking or investment; comprises natural persons as well as private or public legal persons • sharing markets or sources of supply; engaged in economic activity. • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disad- Extraterritoriality vantage; or 8 Does the regime apply to conduct that takes place outside the • making the conclusion of contracts subject to acceptance by the jurisdiction (including indirect sales into the jurisdiction)? If other parties of supplementary obligations which, by their nature so, on what jurisdictional basis? or according to commercial usage, have no connection with the subject of such contracts. The Competition Act is not applicable to competition restrictions outside Finland unless such restrictions are directed against Finnish customers. As the list is not exhaustive, the FCCA and the courts have also found The Finnish government may nonetheless prescribe by decree that the other practices, such as collective boycotts and exchange of sensitive Act is extended to cover a competition restriction outside Finland if this information, to be in violation of section 5 of the Competition Act. If a is required by an agreement made with a foreign state, or if it is in the restriction is considered to be ‘by object’, it is not necessary to show any interests of Finland’s foreign trade. anti-competitive effects. There are no specific provisions on the level of knowledge or intent for a finding of liability. Export cartels Competition restrictions prohibited by section 5 may be covered by 9 Is there an exemption or defence for conduct that only affects the legal exemption in section 6 of the Competition Act, the criteria of customers or other parties outside the jurisdiction? which are similar to those of article 101(3) TFEU. In practice, however, hard-core restrictions are unlikely to qualify for an exemption. There is no specific exemption or defence. The Competition Act is gener- If a competition restriction affects trade between member states, ally not applicable to anti-competitive behaviour outside Finland, unless the FCCA and the Finnish courts apply article 101 TFEU directly. the restrictions are directed against Finnish customers. However, the Finnish government may prescribe by decree that the Act extends to Joint ventures and strategic alliances cover a competition restriction outside Finland if this is required by 5 To what extent are joint ventures and strategic alliances an agreement made with a foreign state, or if it is in the interests of potentially subject to the cartel laws? Finland’s foreign trade.

As in EU competition law, the creation of a full-function joint venture Industry-specific provisions falls under the merger control rules provided that the turnover thresh- 10 Are there any industry-specific infringements? Are there any olds are fulfilled. industry-specific defences or exemptions? Non-full-function joint ventures and strategic alliances are assessed under the rules applicable to cartels, in particular sections 5 The Competition Act does not contain any industry-specific infringe- and 6 of the Competition Act as well as article 101 TFEU if the competi- ments. However, according to section 4a, an undertaking with a market tion restriction affects trade between Member States. share of at least 30 per cent in the Finnish daily consumer goods retail trade shall be deemed to occupy a dominant position. Thus, agreements APPLICATION OF THE LAW AND JURISDICTIONAL REACH entered into by such undertakings are in addition to the prohibition against anti-competitive agreements also assessed under the prohibi- Industry-specific provisions tion against abuse of dominance. 6 Are there any industry-specific infringements? Are there any The Competition Act is not applied to agreements or arrangements industry-specific defences or antitrust exemptions? Is there a which concern the labour market. Furthermore, section 5 of the Act defence or exemption for government-sanctioned activity or shall not be applied to arrangements by agricultural producers, asso- regulated conduct? ciations of agricultural producers, sector-specific associations, and any associations formed by these sector-specific associations concerning The Competition Act is a general act that, as a main rule, covers all the production or sales of agricultural products or the use of common economic activities. However, by virtue of section 2 of the Competition storage, processing or refining facilities if the arrangement fulfils the Act, certain sectors are partly excluded from its scope of application: substantive requirements established in accordance with article 42 the the act is not applicable to agreements or arrangements concerning Treaty on the Functioning of the European Union (TFEU). the labour market or to arrangements by the agricultural sector if such arrangement fulfils the substantive requirements established in accord- Government-approved conduct ance with article 42 TFEU. There are no specific rules governing cartel 11 Is there a defence or exemption for state actions, behaviour in specific industries. government-approved activity or regulated conduct?

The Competition Act contains no specific defence or exemption for state actions, government-approved activity or regulated conduct.

112 Cartel Regulation 2021 © Law Business Research 2020 Frontia Attorneys Ltd Finland

INVESTIGATIONS to its own premises and continue the inspection there. The inspection rights of the FCCA concern all mediums of storage, including tablets, Steps in an investigation mobile phones and other mobile devices of company’s personnel. 12 What are the typical steps in an investigation? The officials of the FCCA are also empowered to request oral explanations and conduct interviews on site as well as to record the If the Finnish Competition and Consumer Authority (FCCA) suspects interviews. The questions should be directly connected to the subject that an undertaking or an association of undertakings is engaged matter of the inspection. The officials of the FCCA are entitled to in conduct contrary to the Competition Act or EU competition law, it present only such questions that are of a factual nature (ie, necessary shall initiate the necessary proceedings to eliminate such conduct. for identifying documents and understanding other facts). Further, the Investigations into suspected competition restrictions can be FCCA has a right to invite representatives of undertakings or persons commenced by the FCCA either on its own initiative, or following a who may, for a justified reason, be suspected of having acted in the complaint or a leniency application. Investigations of serious compe- implementation of a competition restriction, to appear before it. These tition restrictions typically start with the FCCA’s dawn raid at the interviews may also be recorded. undertakings’ business premises. Undertakings’ rights of defence, which pose certain limits on the Further along in the investigations, the FCCA normally requests FCCA’s investigative powers, are set out in section 38 of the Competition written explanations and clarifications and may also conduct inter- Act. For example, an undertaking is not under an obligation to submit views. Having assessed all the obtained information, the FCCA to the FCCA documents that contain confidential correspondence generally either prepares a draft penalty payment proposal for the between an outside legal counsel and the client. Moreover, when an undertaking to comment on or closes the investigation without making undertaking responds to the questions raised by the FCCA, it cannot any penalty payment proposal. be obliged to concede it has participated in a competition restriction. As the FCCA can merely make a penalty payment proposal, it is only after the Market Court proceedings that there is an appealable INTERNATIONAL COOPERATION decision regarding the penalty payment. Other FCCA decisions can generally be appealed to the Market Court. Inter-agency cooperation There are no legal time frames for the FCCA investigations apart 14 Is there cooperation with authorities in other jurisdictions? from the statutory limitation periods. If so, what is the legal basis for, and extent of, such cooperation? Investigative powers of the authorities 13 What investigative powers do the authorities have? Is court The Finnish Competition and Consumer Authority (FCCA) is a member approval required to invoke these powers? of the European Competition Network (ECN), the main purpose of which is to secure an efficient and uniform application of European The FCCA has extensive investigative powers that are largely similar to Union’s competition rules throughout the EU. those of the European Commission. The FCCA also actively cooperates for example with the Nordic An undertaking or an association of business undertakings shall competition authorities and partakes in the international cooperation be obliged, at the request of the FCCA, to provide the authority with conducted within the Organisation for Economic Co-operation and all the information and documents needed for the investigation of the Development, the International Competition Network and the European content, aim and effect of a competition restriction. Such request may Competition Authorities. be supported by a conditional fine. Furthermore, submitting incorrect information to the authority such as the FCCA may cause criminal Interplay between jurisdictions liability under the Finnish Penal Code. 15 Which jurisdictions have significant interplay with your The FCCA has the right to conduct inspections to supervise compli- jurisdiction in cross-border cases? If so, how does this ance with the Competition Act and is, at the request of the Commission, affect the investigation, prosecution and penalising of cartel obliged to conduct an inspection as prescribed in EU competition law. activity in cross-border cases in your jurisdiction? After the 2011 reform of the Competition Act, the FCCA can now also carry out inspections outside business premises such as at private The main interplay for the FCCA is with other European competition residences of directors with an authorisation of the Market Court. The authorities within the framework of the ECN. As members of the ECN Market Court does not grant an authorisation if it considers a search to assist each other in conducting investigations of competition law be arbitrary or excessive. infringements, the FCCA has, for example, conducted investigations in The Competition Act does not expressly require the FCCA to Finland on behalf of other competition authorities, and has received present a written inspection decision when carrying out a dawn raid. similar assistance from other competition authorities. It is nonetheless established practice that the FCCA issues a decision describing the scope and the aim of the inspection as well as the sanc- CARTEL PROCEEDINGS tions for opposing the inspection. The FCCA officials must be allowed to enter any business prem- Decisions ises, storage areas, land and vehicles in an undertaking’s possession. 16 How is a cartel proceeding adjudicated or determined? Further, the officials performing the inspection shall have the right to examine all correspondence, financial accounts, computer files The FCCA is responsible for investigating suspected competition and other documents that may be relevant for ensuring compliance infringements and adopting the infringement decisions to that effect. with Competition Act. The officials may also take copies of documents It has competence to, for example, order an undertaking to terminate and seal business premises, books or records. When necessary, the conduct that violates competition rules, but cannot impose any fines. police shall upon request provide official assistance in conducting the Should the FCCA consider it necessary to impose a fine for anti- inspection. As of June 2019 the FCCA has also the right of a continued competitive conduct, it has to make a penalty payment proposal to the investigation, ie. take copies of material collected during a dawn raid Market Court. The Market Court provides the undertaking to which the www.lexology.com/gtdt 113 © Law Business Research 2020 Finland Frontia Attorneys Ltd

proposal relates with an opportunity to respond in writing or orally. Submission of false evidence to the FCCA in the course of its inves- The Market Court shall include a statement of reasons in its decision tigations may result in criminal sanctions in accordance with the Finnish that indicates which facts and evidence have affected the decision and Penal Code. To date, however, this has not been applied in practice. on which legal grounds it is based. The Market Court decision may be appealed to the Supreme Administrative Court (SAC). Civil and administrative sanctions 21 What civil or administrative sanctions are there for cartel Burden of proof activity? 17 Which party has the burden of proof? What is the level of proof required? Upon the proposal of the FCCA, the Market Court may impose a penalty payment on undertakings that have violated competition rules unless The burden of proof to demonstrate a competition infringement lies the conduct is deemed minor or the imposition of fine otherwise unjusti- with the FCCA. The FCCA must provide sufficient proof to establish that fied with respect to safeguarding competition. In fixing the amount of there has been an infringement. However, to the extent an undertaking fine, the gravity, extent and duration of the competition restriction shall wishes to benefit from an exemption under section 6 of the Competition be taken into account. Repeat offenders may be fined more heavily. The Act (or article 101(3) TFEU), the burden of proof lies with the concerned amount of the fine may be up to 10 per cent of the total turnover of the undertaking. undertaking concerned in the last year of its cartel participation. There are no statutory provisions as to the level of proof required A fine cannot be imposed if the FCCA has not made a penalty in competition restriction matters. On the contrary, the courts follow payment proposal to the Market Court within five years from the the principle of free consideration of evidence. The SAC has confirmed occurrence of the competition restriction or, in the case of a continued in its rulings that the European Convention on and infringement, from the date on which the restriction ended. The five- the EU of Fundamental Rights are applicable in competition year limitation period is interrupted by certain FCCA investigatory cases where penalty payments have been proposed. At the same time, measures. Moreover, there is an absolute limitation period according however, the SAC case law shows that these principles are not applied to which a fine cannot be imposed if the FCCA has not made a penalty to the same extent in competition matters as in criminal matters. payment proposal to the Market Court within 10 years of the applicable dates (the date on which the restriction occurred, or on which it ended Circumstantial evidence in case of a continued infringement). 18 Can an infringement be established by using circumstantial The FCCA may also order an undertaking to cease the activities evidence without direct evidence of the actual agreement? prohibited in the Competition Act (or article 101 of the Treaty on the Functioning of the European Union (TFEU)), and support its order by Finnish courts follow the principle of free consideration of evidence, imposing a conditional fine. A conditional fine can also be used to enforce and therefore circumstantial evidence can also be used to establish an an undertaking’s obligation to provide information and documents as infringement of competition rules. well as the obligation to contribute to the inspections conducted under the Competition Act. The enforcement of conditional fines rests with the Appeal process Market Court. 19 What is the appeal process? By a decision, the FCCA may order that commitments offered by the parties shall be binding if the commitments are such that they eliminate As the FCCA can merely make a penalty payment proposal, it is only the restrictive nature of the conduct. The FCCA may also take interim after the Market Court proceedings that there is an appealable deci- measures if the application or implementation of a competition restric- sion regarding the penalty payment. Most other FCCA decisions may tion shall be prevented at once. Prior to issuing an interim order, the be appealed to the Market Court. Therefore, a decision by the FCCA FCCA should provide the undertaking with an opportunity to be heard. declaring an infringement of competition rules without any penalty However, this is not necessary if the FCCA considers that the urgency payment proposal can generally be appealed. In the same manner, a or another specific weighty reason demands otherwise. After ordering decision finding that no infringement has occurred can be appealed by a interim measures the FCCA must take a decision on the substance of the third party if it has a direct impact on that party. Appeals shall normally matter within 90 days. be lodged within 30 days from receipt of the decision concerned. A Market Court decision under the Competition Act is appealable Guidelines for sanction levels to the SAC. Any person to whom the decision is addressed or whose 22 Do fining or sentencing principles or guidelines exist? If yes, right, obligation or interest is directly affected by the decision, as well are they binding on the adjudicator? If no, how are penalty as the FCCA, has the right of appeal. An appeal shall be lodged within levels normally established? What are the main aggravating 30 days of notice of the Market Court decision. and mitigating factors that are considered? In the SAC, proceedings are predominantly conducted in writing whereas oral hearings are usually limited in scope. According to section 13 of the Competition Act, the amount of the penalty payment shall be based on an overall assessment, and in deter- SANCTIONS mining it, attention shall be paid to the nature and extent, the degree of gravity, and the duration of the infringement. The penalty payment shall Criminal sanctions not exceed 10 per cent of the turnover of an undertaking or association 20 What, if any, criminal sanctions are there for cartel activity? of undertakings concerned during the year in which the undertaking or association of undertakings were last involved in the infringement. There are no criminal sanctions for competition law infringements in In addition, the FCCA has issued guidelines on the assessment of the Finland. The Ministry of Employment and the Economy and the FCCA quantum of penalty payment and on the immunity from and reduction of have investigated the possibility of extending personal criminal liability fines in cartel cases. The guidelines are not binding on the FCCA or the to cartel infringements. However, such criminalisation depends on courts, but at least the FCCA is unlikely to deviate from them. political decision-making and is not likely in the near future.

114 Cartel Regulation 2021 © Law Business Research 2020 Frontia Attorneys Ltd Finland

Compliance programmes umbrella purchaser claims. To avoid overcompensation, compensation 23 Are sanctions reduced if the organisation had a compliance for actual loss at any level of the supply chain shall not exceed the harm programme in place at the time of the infringement? suffered at that level. The Act also contains rules concerning distribution of the burden of proof relating to passing on of the overcharge. There are no provisions to this effect in the Competition Act. Compliance programmes can as such be taken into account as part of the overall Class actions assessment, however there exist no references to this in the case law. 28 Are class actions possible? If so, what is the process for such cases? If not, what is the scope for representative or group Director disqualification actions and what is the process for such cases? 24 Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or The Finnish Act on Antitrust Damages Actions does not contain any officers? provisions concerning class actions. The Finnish Act on Class Actions (444/2007) entered into force on 1 October 2007. The Act may be applied The Competition Act does not include such provisions. between consumers and undertakings in matters within the competence of the Finnish Consumer Ombudsman. It is therefore not applicable to Debarment competition restriction cases. 25 Is debarment from government procurement procedures Notwithstanding the above, a representative action has been held automatic, available as a discretionary sanction, or not admissible under Finnish law by the Helsinki District Court in July 2013 available in response to cartel infringements? in an interim decision. The District Court’s finding would have been chal- lengeable upon appeal of the final ruling but the case was settled by the According to section 81 of the Finnish Act on Public Procurement that parties in May 2014. Thus, there is no established case law on the ques- entered into force on 1 January 2017, debarment from government tion of whether, and under which conditions, representative actions on procurement procedures is available as a discretionary sanction for cartel damages concerning competition infringements are considered admis- infringements. The decision on debarment is made by the contracting sible under Finnish law. entity. The Act does not provide for any set debarment time period. COOPERATING PARTIES Parallel proceedings 26 Where possible sanctions for cartel activity include criminal Immunity and civil or administrative penalties, can they be pursued 29 Is there an immunity programme? If so, what are the basic in respect of the same conduct? If not, when and how is the elements of the programme? What is the importance of being choice of which sanction to pursue made? ‘first in’ to cooperate?

Criminal sanctions for cartel activities are not available under the A leniency programme was first implemented in Finland in May 2004. In Competition Act. Therefore, the sanctions that the FCCA and the Market accordance with section 14 of the Finnish Competition Act (948/2011) Court can impose are administrative in nature. Civil law claims for (the Competition Act), the first undertaking to expose a cartel may benefit liability for damage can be pursued simultaneously in respect of the from immunity if the undertaking: same infringement. Such claims may also be made as stand-alone • produces information or evidence, on the grounds of which the actions irrespective of any prior FCCA investigation or court decision. Finnish Competition and Consumer Authority (FCCA) may conduct a dawn raid; or PRIVATE RIGHTS OF ACTION • following such a dawn raid, delivers information or evidence, on the grounds of which the FCCA can establish that section 5 of the Private damage claims Competition Act (or article 101 the Treaty on the Functioning of the 27 Are private damage claims available for direct and indirect European Union (TFEU)) has been violated. purchasers? Do purchasers that acquired the affected product from non-cartel members also have the ability to bring claims Section 14 of the Competition Act applies only where competitors have based on alleged parallel increases in the prices they paid agreed to fix purchase or selling prices or other trading conditions, to (‘umbrella purchaser claims’)? What level of damages and limit production or sales or to share markets, customers or sources of cost awards can be recovered? supply. Only one undertaking can obtain full immunity. This means that the undertaking must be first to provide the required information or Private damage claims are available under Finnish law. The Finnish Act evidence to the FCCA. An undertaking that has coerced others to partici- on Antitrust Damages Actions came into effect on 26 December 2016. pate in the infringement cannot benefit from full immunity but can still This Act implemented the EU Directive on Antitrust Damages Actions and qualify for a reduction in fine. A leading role in the formation and suste- marked considerable changes to the previous regime. nance of the cartel does not as such debar the undertaking from applying All persons who have suffered harm caused by an infringement for full immunity. of competition law have a right to full compensation. This compensa- An immunity applicant is expected to provide the FCCA with compre- tion shall cover actual loss and loss of profit, as well as payment of hensive and precise information on: interest from the time the harm occurred until compensation is paid. The • the nature of the competition restriction; compensation shall not exceed the amount of the actual harm suffered – • which companies have been involved; hence, only single recovery can be ordered. • which product markets are concerned; According to the Finnish Act on Antitrust Damages Actions, compen- • which geographic areas are concerned; sation can be claimed by anyone who suffered damage, irrespective of • how long the competition restriction has been in force; and whether they are direct or indirect purchasers (or sellers, as the case • how the competition restriction has been implemented. may be). Therefore, there are no legal obstacles to bring, for example, www.lexology.com/gtdt 115 © Law Business Research 2020 Finland Frontia Attorneys Ltd

In addition, the immunity applicant must satisfy all the criteria set out in Approaching the authorities section 16 of the Competition Act whereby it must: 32 Are there deadlines for initiating or completing an application • immediately cease participation in the competition restriction for immunity or partial leniency? Are markers available and unless the FCCA has advised otherwise; what are the time limits and conditions applicable to them? • cooperate with the FCCA throughout the entire investigation; • not destroy any relevant evidence prior to or after submitting the There are no set deadlines for making an application for immunity or application; and leniency. As only the first undertaking to submit the required information • refrain from disclosing to third parties the fact that it has made and evidence is entitled to full immunity, timing is essential. or intends to make a leniency application or the content of the It is a normal practice that an undertaking first conducts a prelimi- application. nary internal analysis to assess whether it is possible that it has engaged in a competition infringement which could qualify for immunity or leni- Once the undertaking seeking immunity has provided the FCCA with ency. Following this, an undertaking may contact the FCCA anonymously all the required information and documents in its possession, the FCCA (typically through an external counsel) to ascertain whether immunity shall inform the undertaking in writing whether it qualifies for condi- is still available. This contact does not affect the order of priority in tional immunity. The FCCA shall issue a final written decision on the case there are several applicants for immunity but the undertaking will issue at the end of the procedure. This decision cannot be appealed. only be told if another cartel participant has already applied for immu- The FCCA’s guidelines contain further details on the FCCA’s leni- nity. An application should be submitted as soon as possible following ency programme. these steps. Under the Finnish Act on Antitrust Damages Actions, an undertaking A system similar to the Commission’s marker procedure is operated that has obtained immunity from fines is as a main rule responsible only by the FCCA. According to section 17 of the Competition Act, the FCCA for damage caused to it own direct or indirect customers or suppliers. may set a deadline for an applicant to provide the required information and evidence. As long as the applicant provides the information within Subsequent cooperating parties the required time frame, the moment of application is deemed to be the 30 Is there a formal programme providing partial leniency for point in time when the first application to the FCCA was submitted. parties that cooperate after an immunity application has been made? If so, what are the basic elements of the programme? Cooperation If not, to what extent can subsequent cooperating parties 33 What is the nature, level and timing of cooperation that expect to receive favourable treatment? is required or expected from an immunity applicant? Is there any difference in the requirements or expectations Undertakings that are not first in to submit the required information and for subsequent cooperating parties that are seeking partial documents to the FCCA may receive a reduction in fine under section leniency? 15 of the Competition Act also after an immunity application has been made by another undertaking. To receive a reduction, an undertaking An immunity applicant must provide all relevant information and must provide the FCCA with information and evidence that is significant evidence in its possession to enable the FCCA to conduct an inspection, or for establishing the competition restriction or its entire extent or nature following an inspection, to enable the establishment of an infringement. before the FCCA has obtained the information from elsewhere. An under- To receive a reduction in fine, subsequent cooperating parties must taking applying for reduction in fine must fulfil the same conditions set submit to the FCCA such information and evidence that is significant for out in section 16 of the Competition Act as an immunity applicant. establishing an infringement or its entire extent or nature before the The reduction depends on the order in which the applicant submitted authority has received the information from any other source. the required information and evidence to the FCCA. The fine shall be reduced by 30 to 50 per cent if the undertaking is the first one to submit Confidentiality significant information, by 20 to 30 per cent if the undertaking is second 34 What confidentiality protection is afforded to the immunity and by 20 per cent at most for other applicants fulfilling the criteria. applicant? Is the same level of confidentiality protection According to the FCCA’s guidelines, the amount of the reduction applicable to subsequent cooperating parties? What depends on how significant the provided information and evidence has information will become public during the proceedings and been for establishing the competition restriction. The FCCA may in its when? penalty payment proposal to the Market Court propose a reduction of fines concerning one or several cooperating undertakings. The Market The Competition Act does not contain provisions on the issue of confi- Court is not bound by the proposal. dentiality in competition proceedings. Therefore, the Act on Openness of Government Activities (621/1999, as amended) applies. The Act Going in second applies to documents in the possession of a public authority that have 31 How is the second cooperating party treated? Is there an been either prepared by the authority or provided to the authority for ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, the consideration of the matter. Official documents are public unless a how does it operate? specific legal exception applies. As a main rule, a party to the proceed- ings shall have access even to the contents of such a document which The Competition Act does not provide for an ‘immunity plus’ or ‘amnesty is not public, if it may influence the consideration of the matter. Such plus’ option. Applicants submitting significant information and evidence access may be denied only under certain conditions, for example, where to the FCCA after the immunity applicant may be entitled to a reduction it would be contrary to a very important public or private interest. in the penalty payment as set out in section 15 of the Competition Act. In a previous competition restriction case, one of the investigated The fine shall be reduced by 30 to 50 per cent if the undertaking is the companies requested disclosure of materials that its competitor had first one to submit significant information, by 20 to 30 per cent if the submitted to the FCCA pursuant to a leniency application. The FCCA undertaking is second, and by 20 per cent at most for other applicants refused to grant access. Upon appeal, the Administrative Court of fulfilling the criteria. Helsinki concluded that the requested materials were not public. The

116 Cartel Regulation 2021 © Law Business Research 2020 Frontia Attorneys Ltd Finland competitor of the leniency applicant was considered as a party to the Once the undertaking seeking immunity has provided the FCCA with proceedings. Access to the materials was nonetheless denied by the all the required information and documents in its possession, the FCCA Administrative Court on the basis that such access would have been shall inform the undertaking in writing whether it qualifies for condi- contrary to a very important public interest at the stage when the matter tional immunity. The FCCA shall issue a final written decision on the was still pending before the FCCA. The Supreme Administrative Court issue at the end of the procedure. This decision cannot be appealed. (SAC) upheld the decision. There are no set deadlines for making an application for immunity Further, according to section 17 of the Competition Act, information or leniency. As only the first undertaking to submit the required infor- and evidence provided to the FCCA in immunity or leniency application mation and evidence is entitled to full immunity, timing is essential. can, as a starting point, be used in handling a public enforcement case by It is a normal practice that an undertaking first conducts a prelimi- the FCCA, the Market Court or the SAC. According to the government bill, nary internal analysis to assess whether it is possible that it has such information and evidence cannot, therefore, be used, for example, engaged in a competition infringement which could qualify for immunity for private damages actions. The FCCA may share the documents with or leniency. Following this, an undertaking may contact the FCCA anon- other members of the ECN. ymously (typically through an external counsel) to ascertain whether The Finnish Act on Antitrust Damages Actions that came into immunity is still available. This contact does not affect the order of force in December 2016 contains rules on the use of leniency material priority in case there are several applicants for immunity, but the under- in private enforcement proceedings. These rules largely follow the EU taking will only be told if another cartel participant has already applied Directive on Antitrust Damages Actions. for immunity. An application should be submitted as soon as possible following these steps. Settlements A system similar to the Commission’s marker procedure is oper- 35 Does the investigating or prosecuting authority have the ated by the FCCA. According to section 17 of the Competition Act, the ability to enter into a plea bargain, settlement, deferred FCCA may set a deadline for an applicant to provide the required infor- prosecution agreement (or non-prosecution agreement) or mation and evidence. As long as the applicant provides the information other binding resolution with a party to resolve liability and within the required time frame, the moment of application is deemed penalty for alleged cartel activity? What, if any, judicial or to be the point in time when the first application to the FCCA was other oversight applies to such settlements? submitted.

The Competition Act does not provide for any settlement procedure for DEFENDING A CASE cartel cases. Disclosure Corporate defendant and employees 38 What information or evidence is disclosed to a defendant by 36 When immunity or partial leniency is granted to a corporate the enforcement authorities? defendant, how will its current and former employees be treated? Upon request, the undertaking under investigation has the right to receive information, orally or in another appropriate manner, on the The Competition Act only applies to undertakings engaged in economic documents concerning the investigation and the phase of the proceed- activity. Therefore, the treatment of current and former employees of a ings insofar as it cannot harm investigations in the matter, unless corporate defendant is not within the scope of the Competition Act. otherwise provided in the Act on the Openness of Government Activities (621/1999, as amended) or EU laws. Dealing with the enforcement agency The Act on Openness of Government Activities applies to docu- 37 What are the practical steps for an immunity applicant or ments in the possession of a public authority that have been either subsequent cooperating party in dealing with the enforcement prepared by the authority or provided to the authority for the considera- agency? tion of the matter. Official documents are public unless a specific legal exception applies. As a main rule, a party to the proceedings shall have An immunity applicant is expected to provide the FCCA with comprehen- access even to the contents of such a document which is not public, if sive and precise information on: it may influence the consideration of the matter. Such access may be • the nature of the competition restriction; denied only under certain conditions, for example, where it would be • which companies have been involved; contrary to a very important public or private interest. • which product markets are concerned; An undertaking has the right to be heard prior to the Finnish • which geographic areas are concerned; Competition and Consumer Authority (FCCA) making a proposal for a • how long the competition restriction has been in force; and penalty payment, or a decision stating a violation of sections 5 or 7, or • how the competition restriction has been implemented. articles 101 or 102 of the Treaty on the Functioning of the European Union (TFEU). The FCCA shall inform the undertaking in writing of the In addition, the immunity applicant must satisfy all the criteria set out in claims and grounds relating to the issues that have arisen during the section 16 of the Competition Act whereby it must: investigation. The FCCA shall fix a reasonable time limit within which • immediately cease participation in the competition restriction the undertaking may present its comments either orally or in writing. unless the FCCA has advised otherwise; • cooperate with the FCCA throughout the entire investigation; • not destroy any relevant evidence prior to or after submitting the application; and • refrain from disclosing to third parties the fact that it has made or intends to make a leniency application or the content of the application.

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Representing employees 39 May counsel represent employees under investigation in addition to the corporation that employs them? When should a present or past employee be advised to obtain independent legal advice or representation?

The FCCA’s investigations of the suspected cartel infringements and the following Market Court and Supreme Administrative Court (SAC) proceedings are directed against undertakings only. An undertak- ing’s employees are therefore out of the scope of the Competition Act. However, should an undertaking and its employee have diverging inter- Mikael Wahlbeck ests, it is advisable that they are represented by separate counsel. [email protected]

Multiple corporate defendants Antti Järvinen [email protected] 40 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated? Niko Hukkinen [email protected] It is possible for a counsel to represent multiple corporate defendants. However, a conflict of interest between the defendants may in practice Unioninkatu 30 prevent such representation. 00100 Helsinki Finland Payment of penalties and legal costs Tel: +358 50 362 1951 41 May a corporation pay the legal penalties imposed on its www.frontia.fi employees and their legal costs?

Penalties cannot be imposed on an undertaking’s employees under the Competition Act. If there are legal costs associated with an employee as UPDATE AND TRENDS a result of his or her involvement in the FCCA’s investigations, there is no prohibition under law for a corporation to pay them. Recent cases 45 What were the key cases, judgments and other developments Taxes of the past year? 42 Are fines or other penalties tax-deductible? Are private damages payments tax-deductible? The most significant competition case pending before the Supreme Administrative Court (SAC) concerns the power line design and Under Finnish tax laws, fines are generally not tax-deductible. By construction sector. In 2014, the Finnish Competition and Consumer contrast, recent tax authority praxis indicates that private damages are Authority (FCCA) granted full leniency to Empower, and at the same time tax-deductible under certain circumstances. proposed that a cartel fine amounting to €35 million be imposed on Eltel. The Market Court rejected the proposal as time-barred in March 2016. International double jeopardy In June 2019, the SAC made a request for a preliminary ruling to the 43 Do the sanctions imposed on corporations or individuals take European Court of Justice (Case C-450/19). The request refers to the into account any penalties imposed in other jurisdictions? In question of how long a competition restriction continues in a situation private damage claims, is overlapping liability for damages in in which a cartel participant has entered into a construction contract, as other jurisdictions taken into account? agreed in the cartel, with a player outside the cartel. In the biggest cartel case currently pending before the Finnish So far, there have not been any instances where the FCCA or Finnish Market Court, the FCCA has made a fine proposal amounting to about courts would have taken into account penalties imposed in other juris- €4 million. The FCCA alleges that three EPS insulation manufacturers dictions. This is the case also concerning private damages claims. In have participated in prohibited cooperation between 2012 and 2014. such claims, Finnish courts would in any event have to apply the prohi- On the private enforcement side, on 14 March 2019, the European bition against unjust enrichment according to which damages shall not Court of Justice issued its preliminary ruling (C–724/17) related to the exceed the actual damage suffered by the claimant. Finnish Asphalt Cartel Damage case. The Finnish Supreme Court had made a request for a preliminary ruling concerning whether economic Getting the fine down succession is applicable in competition law damage cases, and if so, 44 What is the optimal way in which to get the fine down? in which circumstances. The European Court of Justice and later the Finnish Supreme Court confirmed that if a company participating in a An undertaking can take advantage of the immunity and leniency proce- competition law infringement is dissolved, damages can also be claimed dure as described in more detail in questions 28 to 32. The existence from a company that continues the economic activity of the dissolved of a compliance programme does not, as such, affect the level of the company. On 18 June 2019 and 22 October 2019, the Supreme Court fine. According to section 13 of the Competition Act, the amount of the ruled on defendant YIT’s appeals in three cases and partially accepted penalty payment shall be based on an overall assessment and, in deter- them. There is still one case pending before the Supreme Court. mining it, attention shall be paid to the nature and extent, the degree of gravity and the duration of the infringement.

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Regime reviews and modifications 46 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

The Ministry of Employment and the Economy set up a working group on 14 June 2019 to prepare amendments to the Competition Act neces- sitated by the Directive (EU) 2019 /1 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market (ECN+ Directive). The working group rendered its report in the form of a draft government bill in May 2020. Proposed amendments relate to inter alia structural remedies for violations of articles 101 and 101 of the Treaty on the Functioning of the European Union and the equivalent provision of the Competition Act, fines for infringement of procedural rules and sanc- tions that can be imposed on trade associations and their members. In addition, teh working group proposes guidelines on the calculation of fines that would be binding for the FCCA. The deadline of the national implementation is 4 February 2021.

Coronavirus 47 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

In a statement published on 9 April 2020, the FCCA noted that it applies the Competition Act in accordance with the policies given in the Commission’s Framework Communication of 8 April 2020. Under the conditions stated therein, companies are, among other things, permitted to make co-operative arrangements for the purpose of, for example, safe- guarding the supply of personal protective equipment and medicines.

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Lionel Lesur and Anna Sacco Franklin

LEGISLATION AND INSTITUTIONS Substantive law 4 What is the substantive law on cartels in the jurisdiction? Relevant legislation 1 What is the relevant legislation? Article L 420–1 of the FCC prohibits concerted actions, agreements or alliances. whether express or tacit implemented by undertakings or In France, cartels are prohibited by article L 420–1 of the French associations of undertakings, that have, or may have, as their objective Commercial Code (FCC). the effect of preventing, restricting or distorting the free play of compe- If a prohibited practice is capable of affecting trade between EU tition in a market. member states, both article 101 Treaty on the Functioning of the European Article L 420–1 of the FCC does not provide for an exhaustive list of Union (TFEU) and article L 420–1 of the FCC may apply cumulatively. prohibited practices. There are no specific provisions dealing with group Procedural rules are provided for in articles L 450–1 to L 450–8 of boycotts or bid rigging but they fall under the scope of this article. the FCC, and the principles relating to their implementation are described Cartels are ‘by object’ restrictions which are per se illegal and their in articles R 450–1 to R 450–8 of the FCC. anticompetitive effect does not need to be proven.

Relevant institutions Joint ventures and strategic alliances 2 Which authority investigates cartel matters? Is there a 5 To what extent are joint ventures and strategic alliances separate prosecution authority? Are cartel matters adjudicated potentially subject to the cartel laws? or determined by the enforcement agency, a separate tribunal or the courts? Joint ventures and strategic alliances are subject to cartel regulation.

The French Competition Authority (FCA), an independent administrative APPLICATION OF THE LAW AND JURISDICTIONAL REACH authority created in 2008 to replace the former Competition Council, investigates cartel matters. Application of the law Within the FCA, a functional separation between its investigating and 6 Does the law apply to individuals, corporations and other decision-making services has been established. entities? The investigating services of the FCA carries out the entire investiga- tion phase. This service is composed of case handlers allocated among The law applies both to corporations and individuals, as long as they are different services under the direction of a general case handler. engaged in a production, distribution or service activity. The FCA’s decision-making body, the board, comprises of 17 members Individuals may also subject to criminal responsibility if they are who do not participate in the investigations. The president of the FCA is involved in anticompetitive behaviours, such as cartels. member of the board. Isabelle de Silva was appointed in 2016. The board meets in plenary sessions, divisions or as a standing committee. Extraterritoriality The FCA may initiate a cartel investigation ex officio, following a 7 Does the regime apply to conduct that takes place outside the leniency application, a prior investigation led by the French General jurisdiction (including indirect sales into the jurisdiction)? If Directorate for Competition Policy, Consumer Affairs and Fraud Control, so, on what jurisdictional basis? or a third-party complaint. French competition law applies to concerted actions, agreements, or Changes alliances that have the objective of affecting the French market or have 3 Have there been any recent changes, or proposals for change, an effect on the French market regardless of the place where the compa- to the regime? nies involved have their headquarters and the conduct took place.

On procedural aspects, France is transposing the Empowering National Export cartels Competition Authorities Directive (EU) No. 2019/1 (ECN+ Directive) which 8 Is there an exemption or defence for conduct that only affects will bring minor changes to French competition law and will confer new customers or other parties outside the jurisdiction? powers on the FCA. It will introduce a principle of discretional prosecution and the FCA will have the power to choose the cases to be addressed French law does not provide for any exemption or defence for conduct in priority and to act on its own initiative to impose interim measures. that only affects customers or other parties outside the jurisdiction. Finally, the maximum fine will be raised and the €3 million maximum fine currently applicable to associations will be removed.

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Industry-specific provisions • have access to software and data stored, and to the unencrypted 9 Are there any industry-specific infringements? Are there any reproduction of information; industry-specific defences or exemptions? • access to the data stored and processed by telecommunica- tions operators, under the conditions and within the limits Article L 420–4 of the French Commercial Code (FCC) sets a specific provided for in article L 34–1 of the French Post and Electronic provision which applies to the agricultural sector. Communications Code.

Government-approved conduct FCA officials inform an investigated undertaking prior to a visit. The 10 Is there a defence or exemption for state actions, officials schedule a meeting with the investigated undertaking and will, government-approved activity or regulated conduct? generally, request for a list of documents to be prepared and provided for the scheduled visit. Two exemptions are set out by the French Commercial Code (FCC) at The FCA may also impose fines of up to 1 per cent of an under- article L 420–4. taking’s total annual worldwide turnover to undertakings that obstruct The first exemption covers practices which result from the applica- an investigation, in particular by supplying incomplete or inaccurate tion of law or subsequent regulations. information, or by submitting incomplete or misleading information or For instance, in 2010, the French Court of Cassation held that the documents (article L 464–2–V of the FCC). tariffs for the consultation and for the surgical acts of certain doctors were subject to price regulation in France, which excluded the appli- Investigations under judicial control (article L 450–4 of the FCC) cation of article L 420–1 of the FCC. The second exemption concerns Under this article, investigations are subject to a judicial order from the practices, the actors of which can justify they ensure economic progress, liberty and custody judge, upon the request of the French Minister of the including by creating or maintaining jobs, and that they reserve a fair Economy, the general case handler or the European Commission. share in the resulting profit for users, without giving the undertakings If the authorisation is granted, investigations will be carried out involved the opportunity to eliminate a substantial part of the compe- under the supervision of the judge and in the presence of the company’s tition for the products in question. Practices consisting of organising representative (or two independent witnesses) and two police officers. agricultural products or products of agricultural origin under the same Officials may: brand or trade name, production volumes and quality or the commercial • conduct unannounced visits to any place; policy (including agreeing a common transfer price), may only impose • seize documents and any information medium; restrictions on competition that are essential to achieve the aim of • affix seals to all business premises, documents and electronic economic progress. storage media within the limit of the duration of the visit to these premises; INVESTIGATIONS • access the data stored and processed by telecommunications operators; and Steps in an investigation • ask any representative for explanations of facts or documents 11 What are the typical steps in an investigation? relating to the subject matter of the investigation.

The French Competition Authority (FCA) can start an investigation at its The order issued by the judge of freedoms and detention must be noti- own initiative, following a leniency application, a third-party complaint, fied verbally. or a prior investigation led by the French General Directorate for The company under investigation has the right to be assisted by Competition Policy, Consumer Affairs and Fraud Control. external legal counsel, but the inspectors do not have to wait for the Once a case has come to the FCA’s attention, the FCA will try to arrival of the external legal counsel to start an investigation. collect further information to determine whether there are relevant and The judicial order authorising the dawn raid and the conduct of the reasonable evidence to establish an infringement to competition law. dawn raid may each be appealed before the first president of the Court For that purpose, the general case handler usually appoints one or of Appeal, within 10 calendar days following the notification of the judi- more agents of the investigating services as case handlers to examine cial order or the receipt of the minutes of the investigation established each case. by the FCA’s inspectors. The FCA may organise unannounced inspections, send requests for Any obstruction of an investigation can be punished by a fine of up information, and set up interviews with any relevant director or employee. to €300,000 and a two-year prison sentence (article L 450–8 of the FCC). The investigation phase is not subject to any specific timeframe. The FCA may also impose fines of up to 1 per cent of an under- taking’s total annual worldwide turnover to undertakings that obstruct Investigative powers of the authorities investigations, in particular by supplying or submitting incomplete, 12 What investigative powers do the authorities have? Is court inaccurate or misleading information or documents (article L 464–2–V approval required to invoke these powers? of the FCC).

Under French law, agents of the FCA may conduct two types of INTERNATIONAL COOPERATION investigations. Inter-agency cooperation Ordinary investigations (article L 450–3 of the FCC) 13 Is there cooperation with authorities in other jurisdictions? If Under article L 450–3 of the FCC, agents have the power to: so, what is the legal basis for, and extent of, such cooperation? • access all business premises, land or means of transport for professional use; The French Competition Authority (FCA) cooperates with competition • request copies of books, invoices and all other professional docu- authorities of other jurisdictions, in particular the European Commission. ments, and obtain or take copies of these by any means and on It may share among the authorities information and documents it already any medium; has in its possession. www.lexology.com/gtdt 121 © Law Business Research 2020 France Franklin

Cooperation between European national competent authorities Burden of proof (NCAs) is increasing. For instance, in 2019, the FCA and Germany’s 16 Which party has the burden of proof? What is the level of Federal Cartel Office launched a joined project on algorithms and proof required? their implications on competition. The final report was presented in November 2019. The burden of proof rests on the party alleging a fact. It can fall on the The FCA is also a member of the OECD Competition Committee, FCA if its stance is that the anticompetitive behaviour is a cartel or on the United Nations’ Intergovernmental Group of Experts, and the the party alleging a breach of competition rules. International Competition Network (ICN). For commercial matters, in France, evidence is freely submitted by As an example, through the ICN’s Cartel Working Group, the FCA the parties (ie, evidence may be provided by any means (eg, documents participated in the study of the implications of Big Data and algorithms in or witness testimony)). the fight against cartels. The scoping paper was issued in June 2020 and presented two perspectives: Big Data and algorithms as a new ‘threat’ Circumstantial evidence and as a new ‘tool’ for cartel enforcement. 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement? Interplay between jurisdictions 14 Which jurisdictions have significant interplay with your The FCA can prove an infringement via circumstantial evidence – jurisdiction in cross-border cases? If so, how does this affect precise, serious and consistent indicia that are circumstantial and do the investigation, prosecution and penalising of cartel activity not have a direct link to the actual infringement can constitute sufficient in cross-border cases in your jurisdiction? proof of the infringement when taken together.

Regulation 1/2003 organises the cooperation between the Appeal process European NCAs. 18 What is the appeal process? According to article 22(1) of the Regulation 1/2003, the FCA may, in its own territory, carry out inspections or other fact-finding measures The FCA’s decisions can be appealed by the parties or the French under its national law on behalf of the NCA of another EU member state Minister of the Economy before the Paris Court of Appeal within a month in order to establish whether there has been an infringement of article of the decision being issued (article L 464–8 of the French Commercial 101 or 102 of the Treaty on the Functioning of the European Union (TFEU). Code (FCC)). Appeals before the Paris Court of Appeal are full appeals The FCA may also request the communication of information or and may challenge facts and points of law. Thus, the court can annul documents. FCA decisions either partially or totally. Since NCAs may also apply European competition law, the FCA Appeals are not suspensive. However, the First President of the shall inform the European Commission when it applies article 101 TFEU, Paris Court of Appeal may order the execution of the decision to be before starting investigation measures, and will stop its investigation if suspended if it may lead to manifestly excessive consequences or if new the Commission initiates its own proceedings. facts of exceptional gravity have come to light since notification of the The FCA actively cooperates with the European Commission by decision was issued. performing investigations and supplying any relevant information or Appeals can be further referred to France’s highest civil court, documents. the Court of Cassation, within two months of the Paris Court of Appeal A recent example of cooperation is the Booking case. The FCA, issuing its appellant ruling. This further appeal is limited to points of law in collaboration with nine NCAs and the Commission, launched a and does not have a suspensive effect. survey among hoteliers to assess remedies implemented in the hotel An appeal against an FCA interim measure may be lodged before booking sector. the Paris Court of Appeal within 10 days after receiving notification of the FCA’s decision. The FCA shall render its decision within one month. CARTEL PROCEEDINGS SANCTIONS Decisions 15 How is a cartel proceeding adjudicated or determined? Criminal sanctions 19 What, if any, criminal sanctions are there for cartel activity? Adjudication powers lie with the French Competition Authority (FCA) and national courts. Article L 420–6 of the French Commercial Code (FCC) provides that During the investigation and the prosecution phase, the FCA’s taking a personal and decisive part in the conception, organisation or agents gather all the relevant information to determine the existence of implementation of an anticompetitive practice is a criminal offence, and anticompetitive practices. individuals can be punished by a prison sentence of four years and a At the end of the investigation, the FCA dismisses the case or fine up to €75,000. provides the concerned parties with a statement of objections and the Criminal sanctions cannot be imposed by the French Competition parties can answer within two months. The investigation services will Authority (FCA), which has to refer the criminal part of the case to the then issue a report detailing the objections upheld by the rapporteur public prosecutor. at the end of the investigation, the seriousness of the anticompetitive In practice, criminal sanctions are very rare and cases are limited behaviour and the damage it caused to the economy. The parties can to bid rigging in which the French state was the victim. So far, no prison answer within two months. sentences have been issued. The case is then discussed before the FCA’s board. The board hears the investigation services, the parties and a representative of the government. After a hearing with the parties, the board will issue a decision and may impose sanctions or dismiss the case.

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Civil and administrative sanctions circumstances (eg, a leadership role) or mitigating circumstances (eg, 20 What civil or administrative sanctions are there for cartel the company was compelled to participate in the cartel). activity? Then it compares the adjusted base amount with the legal maximum and then adjusts it to take into account leniency proceedings The FCA has the power to impose injunctions, publicise its findings, and or settlements. issue fines. Finally, the FCA may adjust the amount if the company is currently facing financial difficulties. Injunctions and interim measures The FCA may issue injunctions requesting the termination of the anti- Compliance programmes competitive practice within a determined period. If this order is not 22 Are sanctions reduced if the organisation had a compliance followed, a financial penalty may be imposed. programme in place at the time of the infringement? The FCA may also grant interim measures (L 464–1 of the FCC) if there is a strong presumption that the alleged practice will seriously and Since October 2017, the existence of a competition law compliance immediately affect the general economy, the economy of the concerned programmes does not affect the fine the FCA may impose. Therefore, sector, or the interests of consumers or the plaintiff. no mitigating factor can be expected from a compliance programme. If the FCA is not already involved, the French Minister of the Similarly, the FCA will not treat the existence of a compliance programme Economy may also impose orders obliging parties to terminate anticom- as an aggravating factor. petitive practices (article L 464–9 of the FCC) if the affected market is local, the practice does not fall within articles 101 or 102 of the Treaty on Director disqualification the Functioning of the European Union, the national turnover of either 23 Are individuals involved in cartel activity subject to orders company does not exceed €59 million, and its aggregated turnover does prohibiting them from serving as corporate directors or not exceed €200 million. officers?

Publication Disqualification is not a sanction under French competition law. The FCA has the power to order the publication in the press of a summary of its decision. The purpose of this is to alert companies in the Debarment sector and the public of the harmful nature of the unlawful behaviour 24 Is debarment from government procurement procedures (article L 464–2 of the FCC). automatic, available as a discretionary sanction, or not available in response to cartel infringements? Fines and sanctions The FCA may impose fines of up to 10 per cent of an undertaking’s total Under article L 2141–9 of the French Public Procurement Code, a annual worldwide turnover. Fines imposed on individuals are limited to public purchaser may exclude individuals and companies from public €3 million. procurement procedures if the purchaser has sufficient evidence that Periodic penalty payments of up to 5 per cent of the average an individual has implemented coordination practices with a view to daily turnover of a company can also be ordered by the FCA to force a distorting competition. company to comply with its decision or a binding commitment under- taken by the company. Parallel proceedings The FCA is bound by its 2011 fining guidelines for the setting of 25 Where possible sanctions for cartel activity include criminal sanctions. and civil or administrative penalties, can they be pursued The FCA may also impose fines of up to 1 per cent of an under- in respect of the same conduct? If not, when and how is the taking’s total annual worldwide turnover to undertakings that obstruct choice of which sanction to pursue made? an investigation, in particular by supplying incomplete or inaccurate information, or by submitting incomplete or misleading information or The same conduct can lead to criminal and administrative sanctions, but documents. they cannot be imposed by the same court. Criminal penalties can only be imposed by the national criminal courts, while administrative sanc- Civil sanctions tions are imposed by the FCA. French law does not provide for any specific civil sanctions. Civil actions Individuals or companies that suffer a loss from an anticompetitive before national courts are opened to companies or individuals that have practice can bring a private damage claim in front of the civil courts. suffered damages from anticompetitive practices. PRIVATE RIGHTS OF ACTION Guidelines for sanction levels 21 Do fining or sentencing principles or guidelines exist? If yes, Private damage claims are they binding on the adjudicator? If no, how are penalty 26 Are private damage claims available for direct and indirect levels normally established? What are the main aggravating purchasers? Do purchasers that acquired the affected and mitigating factors that are considered? product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the On 16 May 2011, the FCA issued a procedural notice on the method for prices they paid (‘umbrella purchaser claims’)? What level of setting antitrust fines. damages and cost awards can be recovered? First, the FCA sets a ‘basic amount’ for each company on the basis of the proportion of the value of the sales or products or services to Any individual or company that suffers a personal harm from an anti- which the infringement relates. competitive practice can bring a private claim before national courts. Second, the FCA adjusts the basic amount on the basis of the Pursuant to article L 481–3 of the FCC, the harm suffered may company’s individual situation. It may into account aggravating include loss, lost profit, loss of opportunity or non-material damage. www.lexology.com/gtdt 123 © Law Business Research 2020 France Franklin

In accordance to the French rules of civil liability, the plaintiff less than two months and no more than six months after the completion has to prove: of the publicity measures ordered by the judge (article L 423–5 of the • an infringement of competition rules; Consumer Code). • the damage suffered; and The class members will be compensated under the terms of the • a causal link between the infringement and the damage. judge’s ruling made during the first stage of the process. A simplified procedure has also been established when the identity There are no specific rules governing the level of damage. French law and the number of consumers are accurately known, and when victims guarantees the principle of full reparation of the damage but prohibits have each suffered equivalent damages. punitive damages. Class actions remain limited in number, which recently led to the Plaintiffs may face numerous difficulties in proving the fault, the issuance of a report addressing the difficulties encountered in executing damage and the causal link between them. them and making certain recommendations to encourage the develop- Directive 2014/104/EU of the European Parliament and of the ment of collective redress (French National Assembly, information report Council of 26 November 2014 on certain rules governing actions for of 11 June 2020). damages under national law for infringements of the competition law provisions of the EU member states and of the European Union was COOPERATING PARTIES transposed into French law by Order No. 2017–303 and Decree No. 2017– 305 of 9 March 2017. Immunity The new provisions introduce an irrebuttable presumption of fault 28 Is there an immunity programme? If so, what are the basic when the existence and imputation of the anticompetitive practice have elements of the programme? What is the importance of being been established by an FCA decision which cannot be the subject of an ‘first in’ to cooperate? appeal before the Paris Court Appeal (article L 481–2 of the FCC). Thus, the victim does not have to prove an infringement if the private Article L 464–2 of the French Commercial Code (FCC) provides for the action is brought after the FCA’s decision. Victims of competition law possibility of leniency for companies that have contributed proving the infringements may also bring stand-alone actions (ie, actions that are not existence of a prohibited practice and whom its authors were providing based on a previous finding of infringement by a competition authority). evidence which the FCC or any public official were previously unaware of. In these cases, the victim must prove the alleged infringement of compe- The regime of leniency programme has been detailed in Procedural tition law, the harm suffered and the causal link between the two. Notice on French Leniency Proceedings, which was first published in 2004. The Directive 2015/104/EU created a rebuttable presumption of a Cases in which a leniency applicant can benefit from full immunity damage to the victim of a cartel. are known as ‘Type 1 cases’. The Notice provides for two types of Type 1 If the claimant faces difficulties quantifying the harm, national case: Type 1A and Type 1B cases. courts can be empowered to make an estimation. Type 1A cases are those where the French Competition Authority Following the directive and the ordinance, additional guidance was (FCA) has no information or evidence that is sufficient for investigative provided by the Commission at the European level, which issued a guide measures to be initiated and a leniency application enables the FCA to in 2019 on the assessment of the passing on of overcharges, as well carry out a targeted on-site inspection. as by the French Ministry of Justice, which adopted a soft law instru- Type 1B cases are those where the FCA is already aware of the cartel ment to assist victims and the courts in interpreting the provisions of but may not have enough evidence to substantiate an objection. The the Ordinance (the Circular of 23 March 2017). The Paris Court of Appeal undertaking which receives Type 1B leniency is the first to submit infor- also issued a set of guidelines focusing on the assessment of economic mation that allows the FCA to demonstrate the existence of the cartel. damages (Fiches méthodologiques, 19 October 2017). Any leniency applicant has to meet the following obligations: it must immediately end its involvement in the cartel (however, the FCA can Class actions authorise the undertaking to continue its participation in the cartel in 27 Are class actions possible? If so, what is the process for such order to preserve the confidentiality of the leniency application and the cases? If not, what is the scope for representative or group efficiency of the investigation), and it must cooperate effectively, fully, actions and what is the process for such cases? totally, on a continuous basis and swiftly with the FCA, which implies: • providing all information and evidence; Since the Hamon Law of 17 March 2014, consumers may bring class • refraining from destroying, falsifying or dissimulating information or actions before competent civil courts. pieces of evidence; and The class must be represented by an authorised consumer asso- • maintaining strict confidentiality over its leniency application. ciation and members of the class must be selected through an opt-in system (article L 623–1 (2) of the FCC). Neither consumers acting alone Subsequent cooperating parties nor professionals (ie, workers who are required to be a member of regu- 29 Is there a formal programme providing partial leniency for latory bodies) may engage in a class action. parties that cooperate after an immunity application has been Class actions may only be brought within five years from the date of made? If so, what are the basic elements of the programme? If the decision establishing an infringement of competition rules was made. not, to what extent can subsequent cooperating parties expect The procedure is conducted in two phases. to receive favourable treatment? In the first phase, a judge rules on the principle of the defendant’s and defines the categories of victims. The judge also determines what Undertakings which do not meet the conditions for a total immunity may damage could be repaired, as well as the period of time during which benefit from a partial reduction of fine. In any case, they must provide the consumers may join the group. FCA with evidence of the alleged cartel’s existence that has ‘significant During the second phase, once a declaratory ruling on liability has added value’ over the evidence already in the FCA’s possession. been issued, any consumer in an identical or similar situation may join To determine the level of the reduction, the FCA will take into the group to obtain compensation, on an opt-in basis, within a two- to consideration the timing of the application and the ‘added value’ of the six-month period. This time period, which is fixed by the judge, can be no information that is provided.

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Going in second Information provided by the leniency applicant is disclosed to the 30 How is the second cooperating party treated? Is there an parties involved when the statement of objections is issued. The parties ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, to the procedure have access to the electronic recordings of the oral how does it operate? statements. Other documentary evidence provided by the leniency applicant is made accessible, subject to confidentiality rules. The FCA will take into account the timing of the application and the The FCA may accept the redaction of confidential information that degree to which the information provided by the applicant is of ‘significant constitutes business secrets, provided this information is not essential added value’. for the exercising the rights of defence by the other parties or the estab- In principle, the fine for the first undertaking that provides infor- lishment of the infringement. mation of ‘significant added value’ may be reduced by 25 to 50 per cent; In court proceedings, under article L 483–5 of the FCC, the judge the fine for the second undertaking that submits such information may cannot order the FCA to disclose corporate statements made in support be reduced by 15 to 40 per cent; and the fine for any other undertaking of a leniency application. providing such information may be reduced by no more than 25 per cent. Under French law, there is no ‘immunity plus’ or ‘amnesty plus’. Settlements 34 Does the investigating or prosecuting authority have the Approaching the authorities ability to enter into a plea bargain, settlement, deferred 31 Are there deadlines for initiating or completing an application prosecution agreement (or non-prosecution agreement) or for immunity or partial leniency? Are markers available and other binding resolution with a party to resolve liability and what are the time limits and conditions applicable to them? penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? There is no deadline for initiating or completing an immunity application. However, the FCA takes each applicants’ place in the leniency queue into Undertakings may benefit from fine reductions if they do not challenge account when granting markers. the existence of the alleged practices (article L 464–2 of the FCC). In order to obtain a marker, the applicant need only provide limited The general case handler submits a proposed settlement ‘setting information. They then receive a deadline – generally one month – to out the minimum and maximum amount of penalty’ to the company. If finalise its application and to provide supporting evidence. the proposal is accepted, the case handler refers it to the FCA’s board which will impose a fine within the range stated in the settlement. Cooperation Any company can request a settlement before or following the 32 What is the nature, level and timing of cooperation that is issuance of a statement of objections. In order to apply, the undertaking required or expected from an immunity applicant? Is there any must agree to waive its right to challenge the existence of the practices difference in the requirements or expectations for subsequent (ie, their materiality, duration, scope and the undertaking’s participation cooperating parties that are seeking partial leniency? in the practices). Once the statement of objections is sent, the under- taking must contact the case handler without delay as a settlement A leniency applicant must cooperate with the FCA in a true, complete, report must be finalised and signed within two months of the statement swift and lasting manner from the application date until the end of the of objections being issued. investigation. It must submit all relevant information that comes into its The settlement procedure may be implemented in conjunction with possession during the investigation and remain available to answer any the leniency procedure. questions the FCA may have. There is another alternative process: the To apply for leniency, the undertaking only needs to provide the commitment procedure. However, this procedure is mainly used in following basic information: abuse of dominance cases or vertical practices and is not really appro- • its name and address; priate for cartels. • information on the circumstances which led to its leniency application; • the names and addresses of the other cartel participants; Corporate defendant and employees • a detailed description of the alleged cartel (eg, information on the 35 When immunity or partial leniency is granted to a corporate products and territories on which the alleged cartel is likely to defendant, how will its current and former employees be have an impact, the nature and estimated duration of the alleged treated? cartel); and • information on any leniency application relating to the alleged cartel. French competition law does not provide for immunity or leniency from criminal prosecution. The FCA does not have the jurisdiction to pros- The applicant will then be granted a certain period of time to provide all ecute individuals, as this falls within the scope of criminal law and under the supporting documentation that it may have and a corporate statement the scope of the public prosecutor. describing the alleged infringement in detail. However, the FCA’s Procedural Notice of 3 April 2015 on leniency programmes indicates that leniency constitutes a legitimate reason Confidentiality for not referring a case to the public prosecutor. Thus employees are 33 What confidentiality protection is afforded to the immunity protected from criminal sanctions. applicant? Is the same level of confidentiality protection If an individual refuses to cooperate with a leniency applica- applicable to subsequent cooperating parties? What tion’s requirements, the undertaking may take disciplinary action in information will become public during the proceedings and accordance with applicable employment law and contractual rules. when? In principle, employees are contractually obliged to cooperate to the extent that the requested cooperation does not result in a breach of The existence of a leniency application and the identity of the applicant are their fundamental rights. kept confidential from the other parties, until the statement of objections is issued. www.lexology.com/gtdt 125 © Law Business Research 2020 France Franklin

Dealing with the enforcement agency Payment of penalties and legal costs 36 What are the practical steps for an immunity applicant 40 May a corporation pay the legal penalties imposed on its or subsequent cooperating party in dealing with the employees and their legal costs? enforcement agency? Article L 470–1(2) of the FCC provides that a court may sentence the An application for leniency must be addressed to the FCA’s general case corporation to pay the fines ordered against one of its employee, the handler or leniency officer. They will fix a deadline by which the appli- amount of which may not exceed €3,000 for a natural person and €15,000 cant must provide all the elements of evidence in its possession and on for a legal person. the basis of which, the case handler will prepare a report. The applicant must file its application with the general case handler Taxes in writing or orally. 41 Are fines or other penalties tax-deductible? Are private Receipt of the application by the general case handler allows the damages payments tax-deductible? applicant to apply for a marker. Markers protect the applicant’s place in the leniency queue for a period of time specified by the general Article 39, section 2 of the French General Tax Code provides that case handler. financial sanctions are not tax-deductive. This also applies to fines for Finally, the case is examined by the board of the FCA, which formally breaches of competition rules. grants leniency if its considers that the conditions have been fulfilled. Private damages imposed by national courts are tax-deductible. Potential applicants can freely and anonymously contact the FCA’s Leniency Officer to obtain information about the leniency programme International double jeopardy before formally applying for leniency. 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In DEFENDING A CASE private damage claims, is overlapping liability for damages in other jurisdictions taken into account? Disclosure 37 What information or evidence is disclosed to a defendant by In accordance with the principle of double jeopardy, the FCA may not the enforcement authorities? bring proceedings against or impose a fine on corporations or individ- uals that have already been prosecuted or fined if the facts, the party The procedure before the French Competition Authority (FCA) and concerned and the legal interest protected at stake are the same. national courts is contradictory. Thus, in order to have their rights of This principle also applies to overlapping damage claims. defence guaranteed, defendants should have access to the documents on which the FCA or the courts intend to base their claim of a cartel’s Getting the fine down existence. 43 What is the optimal way in which to get the fine down? Article L 463–4 of the FCC provides that the French Commercial Code (FCC) may refuse to grant parties access to documents containing The most efficient way to reduce a fine is to apply for leniency or to coop- business secrets. If access to such documents is necessary to protect erate with the FCA in the context of settlement procedures. the rights of defence, the defendant shall have access to a non-confi- The existence of a pre-existing compliance programme or compli- dential version. ance initiatives undertaken after the investigation has commenced do not affect the level of the fine. Representing employees 38 May counsel represent employees under investigation in UPDATE AND TRENDS addition to the corporation that employs them? When should a present or past employee be advised to obtain independent Recent cases legal advice or representation? 44 What were the key cases, judgments and other developments of the past year? Counsel may represent employees under investigation in addition to the corporation that employs them, except in situations where this would On 9 January 2020, the French Competition Authority (FCA) announced lead to a conflict of interest. its main priorities for 2020. It stressed that the digital and retail sectors A present or past employee should obtain independent legal advice would remain at the top of its agenda, given the recent developments in or representation when he or she becomes the individual object of a these fields and the challenging competition issues they raise. criminal prosecution or, more generally, when his or her interests differ The FCA recalled that trade unions and associations have been from that of the corporation employing them. sanctioned several times in recent years for infringements of competi- tion law. The FCA sanctioned a wide variety of professional bodies such Multiple corporate defendants as notaries, architects, and courier services for cartel practices. The FCA 39 May counsel represent multiple corporate defendants? Does warned that heftier fines were to be expected since the implementation it depend on whether they are affiliated? of the Empowering National Competition Authorities Directive (EU) No. 2019/1 (ECN+ Directive), which allows for the imposition of fines of up to Counsel may represent multiple corporate defendants in the same 10 per cent of the global turnover of each company that belongs to the proceedings, unless this would raise to a conflict of interest. union or association. On the legislative front, the FCA will follow the implementation of the ECN+ Directive in France. On 19 February 2020, the FCA expressed its views on the possible lines of approach to enhance antitrust enforcement in the digital sector, both at the EU and national levels. This publication covers questions

126 Cartel Regulation 2021 © Law Business Research 2020 Franklin France relating to anticompetitive practices and shows the FCA’s willingness to be part of the process launched by the European Commission and many competition authorities and regulators in order to deal with questions raised by the growth of digital platforms.

Key cases On 29 January 2020, the Court of Cassation annulled the judgment of the Paris Court of Appeal in the interbank fees case (Cass. com., 29 January 2020, No. 18–10.967) for interpreting the concept of ‘restriction by object’ too broadly. The Court of Cassation noted that only coordination practices Lionel Lesur that harm competition to a sufficient degree may be qualified as restric- [email protected] tions by object. Absent a clearly established anticompetitive object, likely Anna Sacco anticompetitive effects must be proven to establish an infringement of [email protected] articles 101(1) TFEU and L 420–1 of the French Commercial Code (FCC). On 20 February 2020, the Paris Commercial Court dismissed the 26, avenue Kléber damages claim brought by various entities of Belgian retail group Louis 75116 Paris Delhaize following the FCA’s 2015 sanction decision in the Dairy Products France case. The Court considered that the claimants’ economic assessment Tel : +33 1 45 02 79 00 of their harm was insufficiently substantiated, whereas the defendants www.franklin-paris.com were able to successfully raise the passing-on defence. On 16 March 2020, the FCA imposed a €1.1 billion fine on Apple for entering in anticompetitive agreements with its distributors and abusing the situation of economic dependency of its network of Apple in response to a statement of objections or a report’. The suspension Premium Resellers. The decision follows an investigation initiated in has now been lifted. As a result, the legal and regulatory time limits 2012, when eBizcuss, which was at the time the largest French Apple which were suspended on 12 March 2020, started to run again as of 24 Premium Reseller, accused Apple of abusing its dominant position. In its June 2020. decision, the FCA found that Apple had engaged in two vertical infringe- ments, one with its wholesalers and the other with its network of Apple Premium Resellers, and in an abuse of economic dependence under L 420–2 of the FCC. On 18 May 2020, the Court of Cassation upheld the Paris Court of Appeals’ judgment which had confirmed the FCA’s fining decision against Groupement des Installateurs Français (Groupe GIF). The Court of Cassation held that the FCA’s board could re-open the investigation to allow the FCA’s investigation services to add evidence which they relied upon for establishing the statement of objections but that they ‘inadvert- ently omitted’ to include in the case file. The defendant’s response to the statement of objections can remain in the case file, despite the fact that the defendant did not have access to that evidence when preparing its response, as long as the defendant is given the chance to reply to a supplementary statement of objections after the investigation is re-opened.

Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

There are no ongoing or anticipated reviews of or proposed changes to the current legal framework.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

The FCA’s premises closed on 17 March 2020 due to the containment order from the French government, but its services, especially its inves- tigation services, continued to work remotely. The FCA did suspend ‘the two-month period available to compa- nies to submit, in applying article L 463–2 of the FCC, their comments www.lexology.com/gtdt 127 © Law Business Research 2020 Germany

Markus M Wirtz and Silke Möller* Glade Michel Wirtz

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? The most recent amendment of the GWB (the 10th amendment) contains The German Act Against Restraints of Competition (GWB) provides especially the following changes in respect of the cartel regime: a regulatory framework to prevent the restraint of competition in • provisions on the mutual assistance between competition authori- Germany, irrespective of whether this was caused within or outside the ties of EU member states in implementing the Empowering National German territory. Section 1 GWB, which has been largely aligned with Competition Authorities Directive (EU) No. 2019/1 (ECN+); article 101(1) of the Treaty on the Functioning of the European Union • regulations regarding the extension of the investigative tools and (TFEU), prohibits agreements between undertakings and decisions by of the application of the competition authority’s interim measures; associations of undertakings and concerted practices which have as • right of companies to ask the FCO for its legal assessment of the their object or effect the prevention, restriction or distortion of competi- legality of cooperation under the GWB, in cases of a significant legal tion. Section 2 GWB is modelled on article 101(3) TFEU and stipulates and economic interest; conditions under which anti-competitive agreements may be exempted • liability of associations of undertakings for administrative fines from the ban on cartels. based on the aggregated turnover of their members operating on In cases where cooperation between undertakings may affect trade the market affected by the cartel infringement; between the member states, the national and EU competition rules are • of more detailed criteria for calculating administrative applied in parallel. However, as a result of the harmonisation of section fines for cartel infringements; and 1 GWB with article 101 TFEU materially the same standards apply. • statutory provisions on leniency programmes which were until now governed by the FCO’s Notice No. 9/2006. Relevant institutions 2 Which authority investigates cartel matters? Is there Substantive law a separate prosecution authority? Are cartel matters 4 What is the substantive law on cartels in the jurisdiction? adjudicated or determined by the enforcement agency, a separate tribunal or the courts? Section 1 GWB prohibits horizontal and vertical agreements between undertakings, decisions by associations of undertakings, and concerted Cartels that have a domestic effect within the territory of Germany are practices which have as their object or effect the prevention, restriction mainly investigated, prosecuted and enforced by the Federal Cartel or distortion of competition. The undertaking and individuals concerned Office (FCO), an independent federal authority based in Bonn. The will be held liable for any intentional or negligent infringement of decisions of the FCO are handed down by 12 decision divisions which section 1 GWB. are primarily organised according to economic sectors. Each division ‘Agreement’ within the meaning of section 1 GWB has a wide takes decisions independently through a collegiate body consisting of meaning and covers agreements in any form, whether legally enforceable a chairman and two associate members. Although the FCO is under or not. The concept of ‘concerted practices refers to collusive behaviour the responsibility of the Ministry of Economics and Energy, it does not knowingly entered into by undertakings in order to prevent or restrain receive political orders and is independent in its decision-making. If a competition. The key difference between an agreement and a concerted cartel only affects a specific federal state or smaller regions, which is practice is that a concerted practice may exist where there is only prac- rarely the case, the competition authority of the respective federal state tical cooperation between undertakings without any formal decision. is competent. Companies and individuals concerned can appeal against ‘Horizontal agreements generally refer to agreements entered into final decisions imposing fines rendered by the competition authority. between undertakings operating on the same level of a production or The competent appeal court is the Higher Regional Court in the district distribution chain (ie, actual or potential competitors). Particularly serious the competition authority has its seat. For decisions of the FCO this is types of horizontal agreements concern price fixing, market sharing, the Higher Regional Court in Düsseldorf. production or sales quotas, allocation of customers, the exchange of If a cartel infringement constitutes a criminal offence (eg, bid competitively sensitive information relating to prices or quantities and rigging, pursuant to section 298 of the German Criminal Code), the bid rigging (hard-core cartel). public prosecutors have the power to investigate and initiate criminal ‘Vertical agreements’ can be defined as agreements entered into proceedings against individuals, while the competition authorities between undertakings operating at different levels of a production or remain in charge of the investigation of the company. distribution chain and that concern conditions under which the parties may purchase, sell or resell certain goods or services. Vertical price

128 Cartel Regulation 2021 © Law Business Research 2020 Glade Michel Wirtz Germany fixing is a hard-core restriction, while exclusive supply or distribution operated by public authorities, except for the German and agreements, selective distribution systems etc are subject to individual the Reconstruction Loan Corporation, section 185(1) GWB. The term assessment. ‘undertaking’ is to be understood in a broad sense and includes any A cartel infringement must have an appreciable effect on competi- entity engaged in an economic activity, regardless of its legal status, tion. In this regard, the FCO’s De Minimis Notice of 13 March 2007 must the way in which it is financed and whether it has the intention to be taken into account. earn profits. However, section 1 GWB only applies to agreements or Section 2(1) GWB contains an exemption from the prohibition on concerted practices entered into between at least two independent restrictive practices if the conduct in question: undertakings. Therefore, if a company exercises (directly or indirectly) • contributes to improving the production or distribution of goods or decisive influence over another company, it shall be considered as a to promoting technical or economic progress; single undertaking within the meaning of the GWB. The same applies • allows consumers a fair share of the resulting benefit; to companies over which decisive influence is exercised by one and the • does not impose on the undertakings concerned restrictions which same parent company. Individuals acting on behalf of the undertaking are not indispensable to the attainment of these objectives; and can also be fined. • does not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products Extraterritoriality in question. 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If Pursuant to section 2(2) GWB, provisions of the EU block exemption so, on what jurisdictional basis? regulations are applicable irrespective of whether or not these agree- ments may affect trade between the member states (ie, also in purely According to section 185(2) GWB, the GWB shall apply to all restraints national cases). of competition having an effect within the scope of the GWB’s appli- In addition, section 3 GWB stipulates a special exemption for certain cation (ie, Germany), also when caused outside the German territory. types of horizontal agreements between small and medium-sized under- Therefore, it is no precondition for the imposition of sanctions or reme- takings. As this exemption is, however, more lenient than the one laid dies that the company in question has its seat, a branch or an office in down in article 101(3) TFEU and the corresponding section 2(2) GWB Germany. It is not entirely clear if actual effects are required or whether it is not applicable to any constellations which affect the trade between the likelihood of such effects occurring suffices. member states. Export cartels Joint ventures and strategic alliances 8 Is there an exemption or defence for conduct that only affects 5 To what extent are joint ventures and strategic alliances customers or other parties outside the jurisdiction? potentially subject to the cartel laws? Usually, pure export cartels do not have an effect within the territory of Joint ventures can potentially fall foul of the cartel prohibition if they lead Germany and therefore do not fall within the scope of the GWB’s appli- to coordination of the competitive behaviour between the independent cation (section 185(2) GWB). However, export cartels may indirectly shareholders of the joint venture or between a non-controlling share- affect competition in the domestic market. For example, a cartel may holder and the joint venture. The risk of coordination rises if two parent strengthen the economic power of a participating company that has its companies are engaged in business activities on the same, upstream, seat in Germany in a way that creates a barrier for potential competitors downstream or neighbouring markets as the joint venture. But also, in entering the German market, in which case the GWB will apply. cases where the joint venture is non-full-function and only takes over specific functions within the parent companies’ business activities, this Industry-specific provisions may lead to coordinative effects on the level of the parent companies. 9 Are there any industry-specific infringements? Are there any Notably, even if the formation of such a joint venture, be it full-function or industry-specific defences or exemptions? non-full-function, can be subject to merger control, German law applies the cartel prohibition in parallel when assessing the possible effects Sections 28 to 31b GWB contain industry-specific provisions regarding of cooperation. This assessment does not automatically form part of the agricultural, energy, press, and public water supply sectors. For a merger control assessment or a potential merger control clearance example, pursuant to section 30(1) GWB, vertical resale price main- (unlike article 2(4) of the EU Merger Regulation) and is not bound to any tenance agreements by which an undertaking producing newspapers statutory merger control deadlines. Such cartel prohibition proceedings or magazines; products which reproduce or substitute newspapers may also be initiated at any time following the merger control clearance. or magazines and fulfil the characteristics of a publishing product; Strategic alliances include various forms of cooperation between or combined products the main feature of which is a newspaper or undertakings, for example, research & development projects, optimisa- magazine, requires purchasers to demand certain resale prices are tion of distribution channels, or joint purchasing. Generally, such strategic exempt from the prohibition of cartels. Additionally, the price-fixing of alliances are subject to the usual framework as set out in the GWB. books is mandatory in Germany, according to the Law on the Fixing of Book Prices. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Also, there are EU block exemption regulations concerning specific sectors, such as the sale and repair of motor vehicles and the distri- Application of the law bution of spare parts for motor vehicles, which also apply to purely 6 Does the law apply to individuals, corporations and other national cases (section 2(2) GWB). entities?

The cartel prohibition (section 1 of the German Act Against Restraints of Competition (GWB)) applies to private undertakings as well as under- takings that are entirely or partly in public ownership or managed or www.lexology.com/gtdt 129 © Law Business Research 2020 Germany Glade Michel Wirtz

Government-approved conduct 18 of Council Regulation (EC) NO 1/2003, as reinforced by the European 10 Is there a defence or exemption for state actions, Court of Justice in its Orkem judgment). government-approved activity or regulated conduct? Individuals (eg, employees or representatives of the undertakings concerned) who are addressees of the competition authority’s informa- There are no explicit exemptions from applying the cartel prohibition on tion request may refuse to answer questions if the reply would place undertakings or behaviour that are approved by the government (eg, them or a member of their family at risk of being prosecuted. However, national laws or administrative decisions) or through court decisions. this does not apply if the risk of prosecution is limited to an administra- However, section 1 GWB may not be enforced against an undertaking tive fine proceeding and the competition authority has, within the scope if the undertaking does not have the discretion to act differently and of its discretion, committed itself to not prosecute the individual. such government approval is compatible with the German and EU law (especially articles 101 and 102 of the Treaty on the Functioning of the Dawn raids European Union). The competition authority may carry out dawn raids on business and private premises, including private homes and cars. If evidence (both INVESTIGATIONS electronic and paper-based) is found, it will be secured. If the evidence is not handed over voluntarily it can be seized. Generally, dawn raids are Steps in an investigation ordered by a judge. In exigent circumstances, the competition authority 11 What are the typical steps in an investigation? may conduct searches without a warrant. This power is rarely used. Should it be necessary for the purposes of the dawn raid the competi- Investigations by the competition authority can be initiated by a leniency tion authority also has the power to seal rooms or documents. application, complaints of other market participants or ex officio (eg, In addition, employees or representatives of the undertakings based on information from sectoral inquiries, proceedings concerning a concerned may be interviewed during searches and are legally obli- neighbouring market, or even press releases). gated to cooperate. The scope of the right against self-incrimination is In cases where there are sufficient indications of an infringement the same as in cases of information requests, (ie, the subject may refuse of a cartel prohibition, the competition authority will initiate formal to answer questions if the reply would place them or a member of their administrative proceedings and gather further evidence by, for example, family at risk of being prosecuted). executing dawn raids that include the seizure or inspection of hard copies of documents and electronic files, or the hearing of witnesses. INTERNATIONAL COOPERATION If the competition authority suspects an infringement is being carried out, the undertakings and individuals suspected of involvement will be Inter-agency cooperation informed of the authority’s accusation in a statement of objections. They 13 Is there cooperation with authorities in other jurisdictions? will be given the opportunity to state their cases and will be granted If so, what is the legal basis for, and extent of, such access to the case files. The proceedings may be terminated by the cooperation? imposition of an administrative fine or by the issuance of a termination letter. The competition authority may also discontinue the investigation. Cooperation between competition authorities is mainly based on bilat- There is no specific timeframe for cartel investigations. The dura- eral agreements or takes place within international networks. tion of the proceedings depends on the circumstances of each case, but they usually last for several years. For example, in a recent cartel case Bilateral agreements involving technical building equipment, the proceedings were initiated The most important bilateral agreement is the one between the govern- in November 2014 following a leniency application and completed in ment of the United States and the government of Germany relating to December 2019 with the imposition of fines. the mutual cooperation regarding restrictive business practices (effec- tive since 23 June 1976), which determines, in particular, the exchange Investigative powers of the authorities of information, the cooperation during cartel investigations and a 12 What investigative powers do the authorities have? Is court regular exchange on competition policy. approval required to invoke these powers? International networks The investigative powers of the competition authority are generally At a worldwide level, one of the most important associations of competi- laid down in the German Code of Criminal Procedure which applies, tion authorities is the International Competition Network. It was founded mutatis mutandis, to administrative fine proceedings, as well as section in 2001 by representatives of 14 jurisdictions and has now more than 82b of the German Act Against Restraints of Competition (GWB). It may, 130 members. for example, issue requests for information, conduct dawn raids and In Europe, the European Commission and the national competition search premises, take testimonies from witnesses and seize objects, authorities of the member states work closely together on ensuring including data. the coherence of the EU competition policy in the framework of the European Competition Network (ECN). More details on the cooperation Information requests system of the ECN are provided in the Commission Notice on coopera- As a result of the 10th amendment to the GWB, the competition author- tion within the ECN of 27 April 2004 (2004/C 101/03). ity’s power to issue requests for information has been significantly extended. Accused undertakings and associations of undertakings are now obliged to provide, upon the request of the competition authority, all available documents and information. While they may still not be forced into self-incrimination regarding their involvement in a cartel infringement, they may have to disclose information which can (by way of circumstantial evidence) be used as indications or evidence against them (similar to the powers of the European Commission under article

130 Cartel Regulation 2021 © Law Business Research 2020 Glade Michel Wirtz Germany

Interplay between jurisdictions Appeal process 14 Which jurisdictions have significant interplay with your 18 What is the appeal process? jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity The subject of a decision imposing a fine in a cartel case can appeal in cross-border cases in your jurisdiction? the competition authority’s final decision. The appeal has to be filed in writing with the competition authority within two weeks of the decision The framework for interplay between the German competition authority being served. The authority may initiate further investigations at this and other jurisdictions is mainly set out in the system of the ECN and time and will then decide whether to uphold or withdraw its decision. If sections 50a German Act Against Restraints of Competition et seq. it does not withdraw, the files will be forwarded to the appeal court (for Generally, if cross-border agreements or other concerted prac- decisions of the FCO, this is the Higher Regional Court Düsseldorf) for tices restricting competition also have an appreciable effect in the the purpose of a full judicial review of the case. The appeal court will territory of Germany, the cartel prosecution is based on a system of independently investigate the case and hand down its own decision (ie, parallel competences between the Federal Cartel Office and the national the imposition of an administrative fine, acquittal of the accused under- competition authorities of the other affected countries. However, under takings or individuals, or to discontinue the proceedings). Council Regulation (EC) No. 1/2003, the competition authority that first During the court proceedings, the competition authority has the receives a complaint or starts an ex officio procedure remains in charge same rights as the public prosecutor’s office (section 82a(1) GWB) and of the case. If the same complaint is brought before several competi- is therefore fully empowered to participate in the court proceedings and tion authorities, others shall suspend their proceedings or reject the to exercise all the procedural rights that the public prosecutor’s office is complaint on the grounds that another competition authority is already entitled to under the rules of the German Code of Criminal Procedure, dealing with the case. When it is found to be necessary, especially due which applies mutatis mutandis. This includes: to the material link between the infringement and the territory of a • the right to make formal applications; certain member state (eg, the agreement is implemented within its terri- • the right to ask or object to questions to witnesses and experts; tory), the case shall be reallocated to the competition authority of this • the right to approve a settlement between the court and the member state, or to the European Commission if the infringement has defendant independent of the approval of the public prosecu- effects on competition in more than three member states. tor’s office; • the right to give consent if the defendant withdraws the appeal CARTEL PROCEEDINGS against the decision to fine after the beginning of the main hearing; • the right to issue an independent counter declaration; and Decisions • the right to further appeal against the judgment of the appeal court. 15 How is a cartel proceeding adjudicated or determined? A further appeal to the Federal Court of Justice on points of law against Generally, the Federal Cartel Office (FCO) is the decision-making institu- the judgment of the appeal court is possible. In this case, the functions tion. In case a cartel infringement only has effects within a federal state, of the prosecuting authority shall be assumed solely by the Federal the competition authority of the respective state will be competent for Prosecutor General. the case. Both the FCO and the competition authorities of the federal In purely administrative cases (eg, an order to desist) an appeal may states can only investigate and prosecute cartel infringements in the be filed within one month from the rendering of the decision. An appeal course of administrative proceedings. Should a case involve infringe- to the Federal Court of Justice is only possible if the Higher Regional ments of the criminal code (eg, bid rigging) the competition authority Court grants leave to appeal. Should the leave to appeal be denied, it is has to refer these parts to the criminal prosecutor. possible to file an appeal against the refusal of leave to appeal.

Burden of proof SANCTIONS 16 Which party has the burden of proof? What is the level of proof required? Criminal sanctions 19 What, if any, criminal sanctions are there for cartel activity? In cartel proceedings, the competition authority generally bears the burden of proof. Pursuant to section 261 of the German Code of Criminal In Germany, cartel infringements are generally not criminalised, unless Procedure which applies, mutatis mutandis, to the administrative fining they fulfil the requirements for bid rigging which incurs a fine or impris- proceedings, the level of prove shall be free judicial conviction without onment for a term not exceeding five years (section 298 of the German reasonable doubts. If the accused undertaking or individual claims an Criminal Code), or for fraud which incurs a fine or imprisonment for a exemption (eg, pursuant to section 2 German Act Against Restraints of term not exceeding five years (or in especially serious cases of fraud Competition (GWB) or an EU block exemption regulation), the defendant (eg, a major financial loss was caused) a prison term of six months to 10 has to prove that the statutory requirements for the exemption are met. years (section 263 of the German Criminal Code)). Both provisions only apply to natural persons, as in Germany undertakings are not subject Circumstantial evidence to criminal sanctions. 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement? Civil and administrative sanctions 20 What civil or administrative sanctions are there for cartel Yes, but this is only possible if the level of proof required (eg, free judi- activity? cial conviction without reasonable doubts) is reached. Under German civil law, any agreement which infringes the prohibition on restricting competition is null and void. Administrative sanctions are set out in form of fines that can be imposed by the competition authority against undertakings, associations www.lexology.com/gtdt 131 © Law Business Research 2020 Germany Glade Michel Wirtz

of undertakings, and their representatives in cases of the latter partici- Compliance programmes pating in an infringement or violating their supervisory duties. The 22 Are sanctions reduced if the organisation had a compliance amount of the fine is stipulated in section 81c GWB. If an administra- programme in place at the time of the infringement? tive fine is imposed against a natural person, the fine is limited to €1 million. An undertaking can be fined up to 10 per cent of the turnover Section 81d(1) No. 6 GWB allows the competition authority and the it achieved in the business year preceding the competition authority’s court to recognise the establishment of a compliance programme to decision. When calculating this turnover, all the undertakings or indi- close existing compliance gaps as a mitigating factor when setting fines. viduals acting as one economic entity will be taken into account. Also, compliance programmes are essential for the early detection of With regard to fines imposed on associations of undertakings, the infringements, which can result in full immunity or a substantial reduc- 10th amendment to the GWB contains important changes. tion of a fine under the terms of a leniency programme. Previously, the competition authority could impose a fine of up to 10 per cent of an association’s annual turnover. Pursuant to section 81c(4) Director disqualification GWB, the 10 per cent threshold is now based on the aggregate turnover 23 Are individuals involved in cartel activity subject to orders of the association’s members operating in the market affected by the prohibiting them from serving as corporate directors or infringement. The turnover of member undertakings on which a fine officers? has been imposed for the same infringement, as well as the turnover of member undertakings that have obtained full immunity are deducted Apart from the administrative fine of up to €1 million and the criminal when calculating the relevant turnover. rules concerning bid rigging and fraud, there are no additional sanctions Pursuant to section 81b GWB, if the fine cannot be paid in full by such as director disqualification. However, in order to avoid debarment the association, the competition authority may ask the association to from government procurement procedures, the undertaking concerned request the necessary amount from the member undertakings, request must prove that it has taken personnel measures (eg, dismissal of the amount directly from undertakings whose representatives have responsible individuals in management function) that are appropriate been part of the association’s bodies, or, as a last resort, demand to prevent further misconduct (section 125(1) No. 3 GWB). payment from a member of the association operating in the market affected by the infringement (up to a maximum of 10 per cent of its Debarment annual group turnover). 24 Is debarment from government procurement procedures The individual fines for the undertakings and associations involved automatic, available as a discretionary sanction, or not in an infringement are usually substantive. The FCO imposed aggregated available in response to cartel infringements? administrative fines of €376 million in 2018 and €848 million in 2019. The competition authority may also oblige undertakings to termi- Pursuant to section 124(1) No. 4 GWB, public contracting authorities nate a cartel infringement. This may involve behavioural measures may exclude an undertaking from participating in the procurement (ie, stop the behaviour causing the infringement) as well as structural procedure if there are sufficient indications that the undertaking is measures (eg, sale of business divisions, or parts of undertakings or involved in a cartel infringement, irrespective of whether the infringe- shareholdings), whereby structural measures may only be imposed if ment is related to the specific procurement procedure. there are no behavioural measures which would be equally effective, The public authorities must exclude an undertaking from partici- or if the behavioural measures would entail a greater burden for the pating in the procurement procedure if they are aware that a person undertakings concerned. whose conduct is attributable to the undertaking has been convicted by a final judgment or if a final administrative fine has been issued Guidelines for sanction levels against the undertaking for a criminal offence as mentioned in section 21 Do fining or sentencing principles or guidelines exist? If yes, 123(1) GWB. This is especially the case if the cartel infringement in are they binding on the adjudicator? If no, how are penalty question qualifies as fraud (section 263 of the German Criminal Code), levels normally established? What are the main aggravating provided that the offence is directed against the budget of the EU or and mitigating factors that are considered? against budgets administered by the EU or on its behalf (section 123(1) No. 4 GWB). Before the 10th amendment to the GWB came into force, there were no uniform criteria regarding the calculation of fines. While the Federal Parallel proceedings Cartel Office followed its guidelines for the setting of fines in cartel 25 Where possible sanctions for cartel activity include criminal administrative offence proceedings (as revised in June 2013) and and civil or administrative penalties, can they be pursued provided an initial ‘cap’ of the fine on the basis of the turnover relevant in respect of the same conduct? If not, when and how is the to the offence, the appeal court (the Higher Regional Court Düsseldorf) choice of which sanction to pursue made? primarily qualified the 10 per cent threshold provided in the GWB as the maximum penalty, which, in some cases, led to a significant increase of Criminal, civil and administrative sanctions against the same cartel fines in the appeal proceedings. infringement can be pursued by competent authorities in parallel. In Currently, section 81d GWB provides a non-exhaustive list of practice, public prosecutors will pursue the case against individuals, criteria for the calculation of fines, such as: while the competition authorities take the case against the undertaking. • the gravity and duration of the infringement; Sometimes the public prosecutors suspend the criminal investigation • the turnover relevant to the offence; until the competition authority has rendered its decision. • the importance of the products affected by the infringement; • previous infringements committed by the undertaking concerned; and • the undertaking’s behaviour after the infringement (eg, establish- ment of a compliance programme).

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PRIVATE RIGHTS OF ACTION • immediately ends his or her participation in the cartel, unless asked otherwise by the authority; Private damage claims • cooperates fully and continuously with the authority; and 26 Are private damage claims available for direct and indirect • keeps the leniency application and its cooperation with the compe- purchasers? Do purchasers that acquired the affected tition authority confidential. product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the The competition authority shall refrain from imposing a fine if: prices they paid (‘umbrella purchaser claims’)? What level of • a cartel member is, even though the competition authority is damages and cost awards can be recovered? already in a position to obtain a search warrant, the first one submitting evidence which allows the competition authority to Pursuant to section 33a(1) German Act Against Restraints of Competition prove the offence for the first time; (GWB), any person affected by a cartel infringement shall be entitled to • no other cartel member has already been granted full immunity; and claim damages. Therefore, indirect buyers, in addition to direct buyers, • the leniency applicant cooperates fully and continuously with the are also entitled to claim damages from cartel members, if the direct authority. buyers passed the cartel’s excessive prices on to them. In this regard, section 33c(2) GWB contains a rebuttable presumption that price An undertaking that has coerced other undertakings to participate in increases are passed to an indirect buyer. The 10th amendment to a cartel will not be eligible for full immunity under any circumstances. the GWB also introduces a rebuttable presumption that contracts with In addition, there is a limited joint and several liability in follow- cartel members falling within the cartel’s product and regional scope on cartel damage proceedings: an undertaking granted full immunity is are affected by the cartel. Buyers who have purchased a product or generally only liable to its own buyers or suppliers for the damages they service from a competitor of the cartel’s members can also be enti- suffered from the cartel (yet not limited to own supplies). tled to claim damages if the competitor has raised his prices under the umbrella of the cartel. The same applies, mutatis mutandis, to suppliers Subsequent cooperating parties that have become a victim of a purchasing cartel. 29 Is there a formal programme providing partial leniency for Individuals or undertakings damaged by a cartel infringement can parties that cooperate after an immunity application has been claim full compensation (ie, damages and interest, reimbursement of made? If so, what are the basic elements of the programme? court and legal fees and, to a certain extent, fees of economic experts). If not, to what extent can subsequent cooperating parties expect to receive favourable treatment? Class actions 27 Are class actions possible? If so, what is the process for such If a cartel member is no longer entitled to apply for immunity, the fine cases? If not, what is the scope for representative or group can be reduced if the participant provides the competition authority with actions and what is the process for such cases? evidence which makes a decisive contribution to proving the offence. The amount of the reduction will be based on the value of the evidence Class actions are not available for individuals and undertakings affected provided and the position of the applicant in the sequence of leniency by a cartel infringement. They can, however, submit bundled claims applications. This option is also available for the third and following through a third party. If the third party brings the claims through a applicants. vehicle that was only established to claim damages on its own behalf, the foundation of this vehicle must comply with the rules governing Going in second legal representation and advisory services. In a recent case regarding 30 How is the second cooperating party treated? Is there an the bundling of damage claims against the members of the truck cartel, ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, in its judgment of 7 February 2020 (37 O 18934/17), the Munich district how does it operate? court indicated that such business models were not permitted under the German Act on Out-of-Court Legal Services. The GWB does not offer any special treatment for the second leniency applicant. The fine can be reduced if the cartel member provides the COOPERATING PARTIES competition authority with evidence that forms a decisive contribution to proving the offence. The amount of the reduction will be based on the Immunity value of the evidence provided and the position of the applicant in the 28 Is there an immunity programme? If so, what are the basic sequence of leniency applications. This option is, however, also avail- elements of the programme? What is the importance of being able for the third and following applicants. ‘first in’ to cooperate? Approaching the authorities The leniency programme is regulated by sections 81h German Act 31 Are there deadlines for initiating or completing an application Against Restraints of Competition (GWB) et seq. The competition for immunity or partial leniency? Are markers available and authority can, under the general conditions laid down in section 81j GWB what are the time limits and conditions applicable to them? (esp. full and continuous cooperation with the competition authority), grant cartel members full immunity from, or a reduction of, administra- As long as the proceedings are not terminated, it is possible to place tive fines imposed by the competition authority which will, however, not a marker or to file a leniency application. A cartel member can contact affect the criminal prosecution against the responsible individuals. the competition authority and declare their willingness to cooperate to Pursuant to sections 81i, 81j GWB, full immunity from fines will be ensure their respective position in the sequence of leniency applicants granted to a cartel member that: (ie, place a marker). The contact can be made with, for example, the • is the first providing sufficient evidence which, for the first time, Special Unit for Combating Cartels or the chairman of the competent enables the competition authority to obtain a search warrant; decision-making division of the Federal Cartel Office (FCO). The marker • discloses an infringement and its participation in the infringement; can be made orally or in writing and must contain details about the www.lexology.com/gtdt 133 © Law Business Research 2020 Germany Glade Michel Wirtz

infringement, including the names of other cartel members, the prod- Settlements ucts and regions concerned, the duration of the infringement and 34 Does the investigating or prosecuting authority have the the cartel member’s own involvement. The competition authority will ability to enter into a plea bargain, settlement, deferred then set an appropriate time limit for the drafting of a formal leniency prosecution agreement (or non-prosecution agreement) or application. other binding resolution with a party to resolve liability and penalty for alleged cartel activity? What, if any, judicial or Cooperation other oversight applies to such settlements? 32 What is the nature, level and timing of cooperation that is required or expected from an immunity applicant? Is The competition authority may, and regularly does, enter into settle- there any difference in the requirements or expectations ments to terminate administrative fine proceedings. for subsequent cooperating parties that are seeking partial Settlement discussions can be initiated by the competition leniency? authority and the accused individuals or undertakings at any time. If there is a general willingness to terminate the proceedings by settle- The leniency applicant must cooperate fully and continuously with ment, the competition authority will inform the accused party of the the competition authority through the entire proceeding, in particular, facts of the infringement and grant (often limited) access to the case they must: files. After hearing the accused individual or undertaking, the competi- • hand over all information and evidence available and answer the tion authority will propose a settlement declaration based on the latest competition authority’s requests for information in a timely manner; state of its investigations containing: • cooperate fully in the clarification of the case by making board • a description of the offence; members and employees available for interrogations; • information on the circumstances that are relevant for setting • end its involvement in the cartel immediately unless the competi- the fine; and tion authority considers that this would be damaging with a view to • a statement from the accused party acknowledging the facts of preserving the integrity of the investigation; and the alleged infringement, and accepting a fine up to the amount • keep its cooperation with the competition authority confidential announced in the settlement which usually includes a settlement until the authority relieves it from this obligation. discount of 10 per cent.

Confidentiality If a settlement is reached, the proceedings will normally be concluded 33 What confidentiality protection is afforded to the immunity through a ‘short decision’ that only contains the minimum information applicant? Is the same level of confidentiality protection required by law. A court’s approval is not needed for the settlement to applicable to subsequent cooperating parties? What come into force. If the short decision is appealed in spite of the settle- information will become public during the proceedings and ment, the competition authority will usually withdraw the short decision when? and hand down a detailed decision imposing a fine without the settle- ment rebate. The current leniency programme does not include any provisions regarding confidentiality. However, the previous leniency programme of Corporate defendant and employees the FCO stated that the FCO will treat the identity of the leniency appli- 35 When immunity or partial leniency is granted to a corporate cant and its trade and business secrets as confidential until a statement defendant, how will its current and former employees be of objections is issued. It is to be assumed that the FCO will continue treated? with this practice within the scope of the statutory limits. However, the FCO must disclose the identity of a leniency applicant as part of the Unless stated otherwise, a leniency application filed by an undertaking other undertakings’ right to access the case files and to the public pros- will also be qualified as made on behalf of the individuals participating ecutor if the infringement may constitute a criminal offence. in the cartel (eg, former or current employees of the undertaking). This, It should be noted that undertakings or individuals under inves- however, does not relieve individuals from the risk of criminal prosecu- tigation will have access to the case files once they have received a tion for infringements that constitute bid rigging or fraud. statement of objections. The FCO can agree to remove certain trade and business secrets from the file that are irrelevant to the proceedings, Dealing with the enforcement agency but there is no guarantee that such information will not be discovered 36 What are the practical steps for an immunity applicant as the FCO must not redact business secrets when granting defence or subsequent cooperating party in dealing with the counsel access to the file. enforcement agency? After the proceedings have been concluded by a formal decision, the FCO will publish press releases and case summaries which include A cartel member may first contact the competent competition authority the information required by law, such as information on the facts estab- (especially the Special Unit for Combating Cartels or the chairman of lished in the decision imposing fines, information on the type of the one of the competent decision divisions at the FCO) on a confidential and infringement and the period during which the infringement occurred, anonymous basis. Once the cartel member has decided to cooperate, as well as information on the undertakings which were involved in the a marker should be placed as early as possible since full immunity is infringement (section 53 (5) GWB). The published information must generally only granted to the first-in applicant. A marker, however, is also include information on leniency applicants, including undertakings also available for subsequent applicants. The competition authority will which were granted full immunity from fines. then set an appropriate time limit for the drafting of a formal leniency For leniency applicants that are granted full immunity, the FCO application. will not issue a formal decision and usually limits the rights of third parties (eg, buyers or suppliers for the purpose of claiming damages) to access the case files, as far as the leniency statements and any evidence created during the proceedings are concerned.

134 Cartel Regulation 2021 © Law Business Research 2020 Glade Michel Wirtz Germany

DEFENDING A CASE International double jeopardy 42 Do the sanctions imposed on corporations or individuals take Disclosure into account any penalties imposed in other jurisdictions? In 37 What information or evidence is disclosed to a defendant by private damage claims, is overlapping liability for damages in the enforcement authorities? other jurisdictions taken into account?

The competition authority shall grant the defendant full access to the The fact that an undertaking or individual has been sanctioned for the case files upon request. However, the competition authority can deny same cartel infringement in another jurisdiction does not affect the access as long as the proceedings are ongoing in order to not jeopardise ability of a German competition authority to impose fines. In particular, the purpose of the investigation. Therefore, in practice, the competi- the statutory criteria for calculating fines do not make explicit refer- tion authority usually only informs the defendant that it has opened a ence to this. However, since the criteria mentioned in section 81d GWB formal investigation regarding a cartel infringement. Further informa- are not exhaustive, it is at the discretion of the competition authority tion will only be disclosed after the authority has issued the statement whether it takes sanctions that have been imposed in other jurisdictions of objections. into account. Besides the right of the defendant to information, the accused Also, overlapping liability for damages in other jurisdictions will undertaking’s defence counsel will be authorised to inspect files as well not be taken into account in private damage claims brought before as items of evidence. However, if the cartel investigation is ongoing, the German courts. authority may deny access to inspect certain parts of the files to defence counsel, if providing access could impede the investigation. Getting the fine down 43 What is the optimal way in which to get the fine down? Representing employees 38 May counsel represent employees under investigation in Generally, only the first-in applicant can be granted full immunity. addition to the corporation that employs them? When should However, the reduction of fines also depends on the sequence of the a present or past employee be advised to obtain independent leniency applications, the prospect of success of a leniency approach legal advice or representation? should be examined as soon as possible. Besides full and continuous cooperation with the competition authority, other actions that may A defence counsel can represent an undertaking and one employee of reduce fines are, for example, the establishment of a functional compli- this undertaking accused of the same cartel infringement if there is no ance programme or other measures taken by the undertaking in order conflict of interest (section 3 (1) of the German Professional Code of to compensate for the damage caused by the infringement. Conduct for Attorneys-at-Law). The employee should be informed about Also, undertakings and individuals concerned can try to reduce his or her right to seek independent legal representation. fines by reaching settlements with the competition authority. Different attorneys of the same law firm can represent different individuals in addition to their employer. UPDATE AND TRENDS

Multiple corporate defendants Recent cases 39 May counsel represent multiple corporate defendants? Does 44 What were the key cases, judgments and other developments it depend on whether they are affiliated? of the past year?

No. At the end of 2019, the Federal Cartel Office (FCO) imposed fines total- ling €646 million on three steel manufacturers and three individuals Payment of penalties and legal costs responsible for exchanging information on and agreeing certain price 40 May a corporation pay the legal penalties imposed on its supplements and surcharges for quarto plates from mid-2002 until employees and their legal costs? June 2016 in Germany. The illegal agreement was based on the mutual understanding and aim of the participating companies to negotiate with Yes, unless the payment concerns cartel infringements in the future their customers on the base prices only. All companies admitted the which have not been committed yet. accusations made by the FCO and agreed to a settlement. One company was granted full immunity from fines. Taxes Between December 2017 and December 2019, the FCO imposed 41 Are fines or other penalties tax-deductible? Are private fines on 11 suppliers of technical building equipment (eg, sanitation, damages payments tax-deductible? heating and air-conditioning, electronic systems etc.) totalling €110 million. The practices involved the design and installation of technical Under German tax laws, fines set by a national authority are not tax- building equipment for large building complexes such as power plants, deductible, unless the fines do not merely sanction the unlawful industrial facilities and office buildings. The proceedings were initiated behaviour committed but also recoup economic advantages achieved in November 2014 following a leniency application. The fines against by the violation of the law. According to recent decisions of German tax eight companies are already legally binding. Three companies have courts, a fine imposed by the competition authority usually does not each filed an appeal against the decision. contain an element of recoupment, unless it is explicitly stated other- wise in the decision to fine, and are therefore not tax-deductible. The Regime reviews and modifications same applies to private damages payments. 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

No. www.lexology.com/gtdt 135 © Law Business Research 2020 Germany Glade Michel Wirtz

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

Due to the covid-19 pandemic modifications to the German Act Against Restraints of Competition (GWB) (effective since 29 May 2020) have Markus Wirtz [email protected] been made which are limited in time. In particular, section 186 (8) GWB suspends the obligation to pay interest on administrative fines until 30 Silke Möller June 2021 if relaxations of payment conditions have been granted by the [email protected] competition authority. Kasernenstrasse 69 * The answers provided take the 10th amendment to the German Act 40213 Düsseldorf Against Restraints of Competition into consideration. At the time of Germany writing, the amendment had not yet entered into force. Tel: +49 211 200 520 www.glademichelwirtz.com

136 Cartel Regulation 2021 © Law Business Research 2020 Hong Kong

Marcus Pollard and Kathleen Gooi Linklaters

LEGISLATION AND INSTITUTIONS Cartels also fall within the definition of ‘serious anticompetitive conduct’ under section 2 of the Ordinance. ‘Serious anticompetitive Relevant legislation conduct’ is subject to a stricter enforcement procedure – the Commission 1 What is the relevant legislation? may initiate Tribunal proceedings without first issuing a warning notice.

The Competition Ordinance is the primary source of competition law Joint ventures and strategic alliances in Hong Kong. The substantive provisions of the Ordinance came into 5 To what extent are joint ventures and strategic alliances effect in December 2015. potentially subject to the cartel laws?

Relevant institutions Joint ventures which amount to a merger are excluded from the First 2 Which authority investigates cartel matters? Is there Conduct Rule. Such joint ventures have to be ‘full function’ (ie, created to a separate prosecution authority? Are cartel matters perform, on a lasting basis, all the functions of an autonomous economic adjudicated or determined by the enforcement agency, a entity). Relevant factors include independent management, sufficient separate tribunal or the courts? resources and the proportion of output sold to parents. If joint ventures or strategic alliances are not ‘full function’, they are Hong Kong has a prosecutorial competition law regime. The Competition subject to the First Conduct Rule. For example, the Hong Kong Seaport Commission is responsible for investigating alleged contraventions Alliance, a contractual joint venture between four port terminals, has (including cartel conduct), and initiating enforcement proceedings been the subject of an in-depth investigation relating to price alignment before the Competition Tribunal. The Communications Authority shares and capacity sharing. concurrent jurisdiction with the Commission regarding undertakings in the telecommunications and broadcasting sectors. APPLICATION OF THE LAW AND JURISDICTIONAL REACH The Tribunal adjudicates and decides on competition cases brought by the Commission. It is composed of judges of the Court of First Application of the law Instance and has the same jurisdiction to grant remedies and reliefs, 6 Does the law apply to individuals, corporations and other equitable or legal, as the Court of First Instance. entities?

Changes The Competition Ordinance applies to individuals, corporations and 3 Have there been any recent changes, or proposals for change, other entities which fall within the definition of an ‘undertaking’. An to the regime? undertaking must engage in economic activity. The definition includes corporations, partnerships and natural persons (eg, sole traders). The Hong Kong government is conducting a review of the Ordinance. Individuals not acting in the capacity of an undertaking (eg, No significant changes to the Ordinance are currently anticipated. The employees or directors) will not be liable for contravening the First key potential change would be to remove the existing exemptions for Conduct Rule. However, the Commission has taken the view that statutory bodies. individuals may be liable for accessorial liability for involvement in a contravention. To date, the Commission has sought pecuniary penal- Substantive law ties and director disqualification orders against a number of individuals 4 What is the substantive law on cartels in the jurisdiction? alleged to be involved in cartel conduct.

The First Conduct Rule is a general prohibition on anticompetitive arrange- Extraterritoriality ments, including cartel conduct. Knowledge is a pre-requisite to an 7 Does the regime apply to conduct that takes place outside the agreement or concerted practice, but this may be inferred from the facts. jurisdiction (including indirect sales into the jurisdiction)? If The Commission regards cartels as having the object of harming so, on what jurisdictional basis? competition, and therefore it is not necessary to prove any anticompeti- tive effects. The First Conduct Rule applies to conduct that has an impact in Hong Undertakings may still seek to rely on the economic efficiencies Kong, even if such conduct is carried out outside Hong Kong, or if the exclusion to argue that the alleged cartel conduct is excluded from the parties carrying out such conduct are located outside Hong Kong. First Conduct Rule. In practice, the Commission and the Tribunal have been skeptical towards such use of economic efficiencies to exclude cartel conduct. www.lexology.com/gtdt 137 © Law Business Research 2020 Hong Kong Linklaters

Export cartels A search warrant typically grants the Commission the power to use 8 Is there an exemption or defence for conduct that only affects reasonable force to gain entry to the premises and to take possession customers or other parties outside the jurisdiction? of any documents or devices found on the premises that are relevant to the investigation. No. However, the First Conduct Rule is unlikely to apply if the conduct The Commission only requires a court’s approval in order to has no impact in Hong Kong. conduct dawn raids. It does not require such approval to exercise its other investigative powers. Industry-specific provisions 9 Are there any industry-specific infringements? Are there any INTERNATIONAL COOPERATION industry-specific defences or exemptions? Inter-agency cooperation No. The only sector-specific issue relates to the shipping sector. In 13 Is there cooperation with authorities in other jurisdictions? If August 2017, the Commission issued a Block Exemption Order for so, what is the legal basis for, and extent of, such cooperation? Vessel Sharing Agreements between liner operators. The Commission signed a memorandum of understanding with the Government-approved conduct Canadian Competition Bureau in December 2016. The Commission also 10 Is there a defence or exemption for state actions, actively participates in the International Competition Network and the government-approved activity or regulated conduct? Organisation for Economic Cooperation and Development. The Commission also collaborates with other Hong Kong regu- The conduct of the Hong Kong government is not subject to the lators, including the Securities and Futures Commission and the Ordinance. Communications Authority. However, governmental approval or regulation of an undertak- ing’s conduct is not a defence or exemption from the prohibition against Interplay between jurisdictions cartel conduct under the Ordinance, unless the conduct is engaged for 14 Which jurisdictions have significant interplay with your purposes of complying with a legal requirement imposed by or under jurisdiction in cross-border cases? If so, how does this affect any law in force in Hong Kong, or imposed by any national law of China the investigation, prosecution and penalising of cartel activity that applies in Hong Kong. in cross-border cases in your jurisdiction? In addition, the First Conduct Rule does not apply to an undertaking entrusted by the government with the operation of services of general Currently, there are no publicly known cross-border cases involving economic interest. Hong Kong. However, both the Commission and the Tribunal have These exclusions are applied narrowly. For example, in 2018, the referred to case law in other jurisdictions. In the Tribunal’s first ever Commission decided that the Code of Banking Practice, a banking judgments handed down in 2019, it demonstrated extensive reliance on industry code endorsed by the Hong Kong Monetary Authority, does not European Union case law. benefit from the legal requirement exclusion. CARTEL PROCEEDINGS INVESTIGATIONS Decisions Steps in an investigation 15 How is a cartel proceeding adjudicated or determined? 11 What are the typical steps in an investigation? The Competition Commission will initiate Competition Tribunal proceed- The Competition Commission generally conducts its investigations in ings if it has reasonable cause to believe that the alleged cartel two phases. contravenes the First Conduct Rule. On the basis of a trial with witness The first is the Initial Assessment Phase, during which the evidence, the Tribunal will determine whether a contravention has Commission obtains information from publicly available sources, or occurred and what penalties to impose. seeks information from parties on a voluntary basis. The second is the Investigation Phase. This formal investigation Burden of proof phase begins once the Commission has formed a view that it has reason- 16 Which party has the burden of proof? What is the level of able cause to suspect a contravention. During this phase, the Commission proof required? can exercise its compulsory investigative powers under the Ordinance. There is no specific time frame for such investigations – the varies The burden of proof is on the Commission. The applicable standard of on a case-by-case basis. proof is the criminal standard (ie, beyond a reasonable doubt).

Investigative powers of the authorities Circumstantial evidence 12 What investigative powers do the authorities have? Is court 17 Can an infringement be established by using circumstantial approval required to invoke these powers? evidence without direct evidence of the actual agreement?

The Commission has the power to: Generally, circumstantial evidence (eg, similar pricing behaviour of • require the production of documents and information relevant to competitors over a period of time) will not be sufficient to establish the investigation; cartel infringement. This has been confirmed by the Tribunal in the • require individuals to attend interviews before the Commission; and Taching case (CTA1/2018). Parallel conduct is not in itself illegal. Where • enter and search any premises with a warrant issued by a judge of cases are built solely based on undertakings’ parallel behaviour as the Court of First Instance. proof of concentration, alternative explanations of such parallel conduct should be addressed.

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However, the Tribunal has stated in the Nutanix case (CTEA1/2017) 4 Apply any reductions due to the undertaking’s cooperation with the that it may draw appropriate inferences from facts to determine whether investigation and consider any inability to pay fines. a contravention has occurred, provided that such inferences are: • grounded on clear findings of primary fact; In June 2020, the Commission published its Policy on Recommended • a logical consequence of those facts; and Pecuniary Penalties (Recommended Pecuniary Penalties Policy), • ‘irresistible’ (ie, the only inference that can be reasonably drawn adopting the four-step methodology set out by the Tribunal. based on the facts). Aggravating factors include where an undertaking acts as a leader or an instigator of the contravention, or where there is any senior Appeal process management involvement. 18 What is the appeal process? Mitigating factors include an undertaking having limited partici- pation in the contravention and having existing effective compliance There is a right to appeal against any decision made by the Tribunal to programmes. the Court of Appeal (including pecuniary penalty decisions). An appeal The Tribunal ultimately decides the level of pecuniary penal- must be made within 28 days after the date on which the Tribunal’s ties. However, it has indicated that it will have proper regard to the decision is made. Commission’s penalty recommendations, including recommendations for cooperation discounts. SANCTIONS Compliance programmes Criminal sanctions 22 Are sanctions reduced if the organisation had a compliance 19 What, if any, criminal sanctions are there for cartel activity? programme in place at the time of the infringement?

There is no criminal cartel offence in Hong Kong. However, failure to Yes, the Commission has indicated that genuine compliance with the cooperate with the Competition Commission or obstruction of an inves- Ordinance, through prior implementation of a proportionate and ongoing tigation may result in a criminal offence. The infringing persons may compliance programme, is a mitigating factor. face imprisonment or financial penalties. Director disqualification Civil and administrative sanctions 23 Are individuals involved in cartel activity subject to orders 20 What civil or administrative sanctions are there for cartel prohibiting them from serving as corporate directors or activity? officers?

The Competition Ordinance provides a wide range of potential sanc- The Tribunal may make orders to disqualify individuals involved in tions, including financial penalties of up to 10 per cent of Hong Kong cartel activity from being a director, or from taking part in turnover, for a maximum of three years of a contravention (the management, for a period of up to five years. Ordinance does not provide any cap for financial penalties imposed on individuals (eg, employees, directors, other natural persons)) and Debarment director disqualification orders. 24 Is debarment from government procurement procedures Schedule 3 of the Ordinance sets out the full list of other orders automatic, available as a discretionary sanction, or not that may be made by the Tribunal, including disgorgement orders, available in response to cartel infringements? injunctions and declarations that an anticompetitive agreement is void. Debarment from government procurement procedures is not automatic Guidelines for sanction levels under the Ordinance. While the Tribunal has the power to make such 21 Do fining or sentencing principles or guidelines exist? If yes, orders, it has not yet imposed any debarment orders in practice. The are they binding on the adjudicator? If no, how are penalty Hong Kong government may also delist businesses from its supplier levels normally established? What are the main aggravating lists under its own initiative. and mitigating factors that are considered? Parallel proceedings The Ordinance sets out factors that the Tribunal must have regard to 25 Where possible sanctions for cartel activity include criminal when determining the quantum of a pecuniary penalty: and civil or administrative penalties, can they be pursued • the nature and extent of the conduct; in respect of the same conduct? If not, when and how is the • the loss or damage, if any, caused by the conduct; choice of which sanction to pursue made? • the circumstances in which the conduct took place; and • whether there has been any previous contravention(s) of the There are no criminal sanctions against cartelists under the Ordinance. Ordinance.

The Tribunal, having regard to the above factors, considers that the following four-step methodology, which is similar to the European Union’s and United Kingdom’s fining frameworks, should be followed when setting fines: 1 Determine the base amount of the fine, based on the value of sales, and the gravity and duration of the conduct. 2 Make adjustments for aggravating, mitigating and other factors. 3 Apply the statutory cap of 10 per cent of total group revenue in Hong Kong. www.lexology.com/gtdt 139 © Law Business Research 2020 Hong Kong Linklaters

PRIVATE RIGHTS OF ACTION Leniency is only available for the first reporting cartel member or individual. It is therefore important to be the ‘first in’. Private damage claims The timing of the report may also decide whether an applicant 26 Are private damage claims available for direct and indirect is a Type 1 or Type 2 Leniency applicant. Type 1 Leniency applicants purchasers? Do purchasers that acquired the affected are unlikely to be exposed to any follow-on damage risk in Hong Kong. product from non-cartel members also have the ability to Type 2 Leniency applicants, on the other hand, may be required by the bring claims based on alleged parallel increases in the Commission to subsequently admit to liability via an infringement notice prices they paid (‘umbrella purchaser claims’)? What level of to facilitate follow-on actions by victims of the cartel conduct. damages and cost awards can be recovered? Subsequent cooperating parties Private enforcement actions regarding cartel conduct are limited to 29 Is there a formal programme providing partial leniency for follow-on damage claims. Such claims can only be made if a court parties that cooperate after an immunity application has been has previously decided that there has been a contravention under the made? If so, what are the basic elements of the programme? Competition Ordinance, or if an undertaking has made such an admis- If not, to what extent can subsequent cooperating parties sion in a commitment accepted by the Competition Commission. As expect to receive favourable treatment? no claims for follow-on damages have been made in Hong Kong, it is unclear what the Tribunal’s approach on direct and indirect purchasers, Undertakings engaged in cartel conduct that are not the first reporting level of damages and cost awards will be. cartel member are not eligible for immunity. They can however The Ordinance does not allow for standalone private enforcement engage with the Commission within a framework of cooperation and actions. However, competition law contraventions can be raised as a settlement. defence in civil proceedings. In the Taching case (CTA1/2018), the plain- If satisfied with the level of assistance provided, the Commission tiff initiated action for outstanding payments, and the defendant in turn will enter into a cooperation agreement with the cooperating party. The argued that the plaintiff was price-fixing with its competitor and sought case will be settled on on the basis of a joint application to the Tribunal. damages from the plaintiff. The joint application will reflect the facts as set out in a summary of facts agreed by the undertaking and the Commission. The Commission Class actions will recommend a cooperation discount to the fine of up to 50 per cent 27 Are class actions possible? If so, what is the process for such in exchange of the undertakings’ cooperation throughout the investiga- cases? If not, what is the scope for representative or group tion and in subsequent proceedings. The Commission may also agree actions and what is the process for such cases? not to take any proceedings against any current and former employees of the cooperating undertaking, provided that they fully and truthfully Currently, there are no class action procedures for competition claims, cooperate with the Commission. or more general actions, in Hong Kong. Going in second COOPERATING PARTIES 30 How is the second cooperating party treated? Is there an ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, Immunity how does it operate? 28 Is there an immunity programme? If so, what are the basic elements of the programme? What is the importance of being There are different bands of recommended discounts for cooper- ‘first in’ to cooperate? ating parties: • Band 1 – between 35 per cent to 50 per cent; The Competition Commission may make a leniency agreement with an • Band 2 – between 20 per cent to 40 per cent; and undertaking that it will not bring or continue proceedings in the Tribunal • Band 3 – up to 25 per cent. that could result in a pecuniary penalty, in exchange for an undertak- ing’s cooperation. The bands are applied based on the order in which undertakings The Commission’s Leniency Policy for Undertakings Engaged in express their interest in cooperating. Generally, the second cooperating Cartel Conduct (Leniency Policy) was revised in April 2020. party will benefit from the recommended discounts under Band 1, while Leniency is not available to cartel ringleaders and is only available the third or subsequent cooperating parties will fall within Bands 2 or to the first reporting cartel member. Leniency applicants are required to 3. The actual discount within the applicable band will be decided by the continuously cooperate with the Commission throughout an investiga- Commission, having regard to the timing, nature, value and extent of the tion and in any subsequent Tribunal proceeding. cooperation provided by the undertaking. The Commission may include Leniency applicants are categorised as Type 1 – the first leniency more than one undertaking in each band. applicant received when the Commission is unaware of the cartel and An undertaking which only cooperates with the Commission after so has not conducted an investigation – and Type 2 Leniency Applicants the commencement of any enforcement proceedings will be granted a – the first leniency applicant received when the Commission is already lower cooperation discount (capped at 20 per cent). assessing or investigating the alleged cartel. The Commission also offers ‘Leniency Plus’, where an undertaking The Commission has published a Leniency Policy for Individuals cooperating with the Commission in relation to its participation in one Engaged in Cartel Conduct. Individuals (eg, directors or employees) may cartel (First Cartel) may find that it also has engaged in one or more report cartel conduct to the Commission and seek immunity. Immunity separate cartels (Second Cartel). In these cases, the Commission will will only be considered, if no other individual or undertaking has apply an additional discount of up to 10 per cent of the recommended already reported the same conduct to the Commission. However, the pecuniary penalty for an undertaking involved in the First Cartel, Commission has the discretion to apply immunity for further individuals provided that: reporting the same cartel conduct. • the undertaking has entered into a leniency agreement with the Commission in respect of the Second Cartel;

140 Cartel Regulation 2021 © Law Business Research 2020 Linklaters Hong Kong

• the Second Cartel is completely separate from the First Cartel; and applicant for the purpose of making its leniency application, nor release • the undertaking fully and truthfully cooperates with the Commission its records of the leniency application process (including the leniency in respect of both cartels. agreement), unless: • the Commission is compelled to make a disclosure by a court order Approaching the authorities or is otherwise legally required to do so; 31 Are there deadlines for initiating or completing an application • the Commission has the consent of the leniency applicant to for immunity or partial leniency? Are markers available and disclose the material; or what are the time limits and conditions applicable to them? • the relevant information or document is already in the public domain.

The Ordinance does not prescribe any deadline for initiating or The Commission is likely to request the directors or employees of the completing any leniency or cooperation application. leniency applicant to testify in court proceedings, which will reveal the Under the Commission’s Leniency Policy, a marker system is used identity of the leniency applicant. The Tribunal is also likely to compel to hold a leniency applicant’s place and allow the leniency applicant the Commission to disclose the leniency materials during the court to gather the necessary information to perfect its leniency application. proceedings. It is currently unclear the extent and limits that may apply An undertaking or its legal representative may make initial as the first, and only, case initiated via a successful leniency application enquiries on the availability of markers on an anonymous basis. During was brought to the Tribunal by the Commission in January 2020, and it initial enquiries, undertakings may be required to provide informa- is still pending a Tribunal hearing. tion on the broad nature of the cartel conduct, including the affected The Tribunal recognised that there is a strong public interest to industry, product or service, the general nature of the conduct, and the encourage cartel members to apply for leniency and facilitate full and time period. frank discussion. It has confirmed in the Nutanix case (CTEA1/2017) that After confirming that a marker is available, an applicant will need the Commission can resist the disclosure of certain leniency materials to disclose key information, such as its identity and the identities of in an unsuccessful leniency application on public interest immunity or undertakings participating in the cartel conduct. The applicant will be without prejudice privileged grounds. In the Nutanix case, the leniency required to perfect the marker through a proffer process within time materials were without prejudice correspondences or communications period set by the Commission (at least 30 calendar days). between the Commission and an unsuccessful leniency applicant. To perfect the marker, the applicant is required to provide a detailed Where a leniency agreement was terminated by the Commission description of the cartel conduct and the Commission may also ask for (eg, on the grounds that the applicant provided false or incomplete infor- evidence to support the applicant’s proffer. mation), the Commission may use the leniency materials as evidence against the undertaking and other participants in the cartel conduct. Cooperation As set out in the Commission’s Cooperation Policy, similar confi- 32 What is the nature, level and timing of cooperation that dentiality protection will be offered to the cooperating parties which is required or expected from an immunity applicant? Is could not benefit from the leniency policy. there any difference in the requirements or expectations for subsequent cooperating parties that are seeking partial Settlements leniency? 34 Does the investigating or prosecuting authority have the ability to enter into a plea bargain, settlement, deferred The leniency applicant and cooperating parties are required and prosecution agreement (or non-prosecution agreement) or expected to provide the same level and nature of cooperation. Such other binding resolution with a party to resolve liability and cooperation includes: penalty for alleged cartel activity? What, if any, judicial or • providing full and truthful disclosures to the Commission, including other oversight applies to such settlements? promptly providing the Commission with information relating to the cartel conduct and preserving such information; The Commission may enter into cooperation or settlement agreements • making the leniency and cooperation applicant’s employees and with undertakings engaged in cartel conduct. The cooperating under- directors available at the Commission’s request to provide infor- taking and the Commission will make a joint application to the Tribunal mation required at the Commission’s interviews and to testify to settle the case. during subsequent court proceedings; In July 2020, the Tribunal handed its first contravention decision • taking prompt and effective action to terminate its participation in based on a joint application by the Commission and respondents to the cartel conduct, unless requested otherwise to avoid ‘tipping off’ dispose of the proceedings by way of an uncontested procedure. The cartel participants; and Tribunal adopts the Carecraft procedure, which has been routinely • keeping the information relating to the leniency or cooperation applied in the context of directors disqualification proceedings under application confidential. the Companies Ordinance and Securities and Futures Ordinance. The Carecraft procedure allows the limiting of facts (by way of a statement Confidentiality of agreed facts) on which the Tribunal will be asked to base a judgment 33 What confidentiality protection is afforded to the immunity as to the appropriate order to be made, and thereby enables the expe- applicant? Is the same level of confidentiality protection ditious disposal of proceedings and avoids the substantial costs that applicable to subsequent cooperating parties? What would otherwise be incurred if there is a trial. information will become public during the proceedings and when?

The Commission is under a general obligation to preserve the confiden- tiality of any confidential information provided to it. With respect to leniency applications, it is the Commission’s policy to not release any material made available to it by a leniency www.lexology.com/gtdt 141 © Law Business Research 2020 Hong Kong Linklaters

Corporate defendant and employees Once the Commission has brought proceedings to the Competition 35 When immunity or partial leniency is granted to a corporate Tribunal, the respondent may apply to the Tribunal for an order for defendant, how will its current and former employees be discovery and production of a document from the Commission for treated? inspection. The Tribunal may make or refuse to make such an order having regard to all circumstances of the case (eg, the balance between Leniency extends to current (and possibly former) employees, agents, the interests of the parties and whether the document sought is neces- officers and partners of a successful applicant, provided that they fully sary for the fair disposal of the proceedings). and truthfully cooperate with the Commission. Following the approach in directors disqualification proceedings Similarly, the Commission may agree to not bring any proceedings under the Securities and Futures Ordinance, the Tribunal generally against the employees, agents, officers and partners of a cooper- orders that the Commission disclose both used and unused mate- ating party, provided that they fully and truthfully cooperate with the rials in its possession. In certain circumstances, the Commission’s Commission. internal documents, including reports concerning the investigation and enforcement steps taken, and certain internal communications, may be Dealing with the enforcement agency protected by public interest immunity and the Commission may object 36 What are the practical steps for an immunity applicant disclosure of such documents. However, the Commission is required to or subsequent cooperating party in dealing with the justify its claims for public interest immunity in each case. enforcement agency? Representing employees The key steps for a leniency applicant are set out below: 38 May counsel represent employees under investigation in 1 The undertaking, or its legal representative, contacts the addition to the corporation that employs them? When should Commission to ascertain if a leniency marker is available. Such a present or past employee be advised to obtain independent requests can be made by telephone or by email. legal advice or representation? 2 The applicant is required to perfect the marker through a proffer process, either orally or in writing. There are no legal restrictions prohibiting a law firm from representing 3 The applicant enters into a leniency agreement with the Commission both an undertaking and its employees under investigation. In practice, and is required to ensure ongoing compliance with the terms of the lawyers may act for both the employees and the undertaking, so long agreement. as the potential clients give informed consent to joint representation 4 At an appropriate stage (usually at the end of any Tribunal proceed- during a Commission investigation and the risk of conflict arising from ings against other cartel members), the Commission will issue a joint representation has been considered. final letter to confirm the undertaking fulfilled all conditions under the leniency agreement. Multiple corporate defendants 39 May counsel represent multiple corporate defendants? Does The key steps for a cooperating party are set out below: it depend on whether they are affiliated? 1 An undertaking subject to an investigation may indicate its will- ingness to cooperate by making contact with the concerned case There are no legal restrictions restricting lawyers to represent multiple manager of the Commission, either orally or in writing. corporate defendants in the same cartel. In practice, lawyers may act 2 An applicant is required to provide documents and information for multiple corporate defendants as long as the potential clients give through a proffer process, either orally or in writing. informed consent to joint representation during a Commission investiga- 3 Once the Commission and the applicant reach an understanding in tion and the risk of conflicts of interest arising from joint representation principle on the draft Agreed Factual Summary and the draft coop- has been considered. eration agreement, the Commission will indicate to the applicant the maximum recommended pecuniary penalty and the recom- Payment of penalties and legal costs mended discount for the cooperation provided. The applicant will 40 May a corporation pay the legal penalties imposed on its be asked to confirm by signing the cooperation agreement, which employees and their legal costs? will include the Agreed Factual Summary. 4 The applicant is required to ensure ongoing compliance with the An undertaking is prohibited from indemnifying its employees for terms of the cooperation agreement. the payment of a pecuniary penalty and costs incurred in defending 5 At an appropriate stage (usually at the end of any proceedings proceedings. However, funds can be provided to its employees to meet before the Tribunal against other cartel members), the Commission expenditure incurred by them in defending proceedings, provided will issue a final letter to confirm that all conditions under the that the employees repay such funds in the event the employees are cooperation agreement have been fulfilled. required by the Tribunal to pay the pecuniary penalty.

DEFENDING A CASE Taxes 41 Are fines or other penalties tax-deductible? Are private Disclosure damages payments tax-deductible? 37 What information or evidence is disclosed to a defendant by the enforcement authorities? The Ordinance does not specify that fines and private damages payments are tax-deductible. During the Investigation Phase, the Competition Commission generally does not disclose any evidence or information gathered to the subject of the investigation. Where the undertaking is a cooperating party, the Commission will offer the undertaking limited disclosure of a selection of key evidence as part of the cooperation process.

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International double jeopardy 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in other jurisdictions taken into account?

Currently, there are no publicly known cases in which multiple jurisdic- tions are involved. Marcus Pollard Getting the fine down [email protected] 43 What is the optimal way in which to get the fine down? Kathleen Gooi [email protected] Mitigating factors that may lead to reduction of fines include limited participation in the contravention, or the presence of a genuine and 11th Floor Alexandra House effective compliance programme prior to the cartel conduct. Chater Road The Commission may also recommend a cooperation discount Hong Kong to the Tribunal. The percentage of the discount would depend on the Tel: +852 2842 4888 timing, nature, value and extent of the cooperation provided by the www.linklaters.com undertaking. In exceptional circumstances, the Tribunal may also take an under- taking’s inability to pay into account and reduce the fine. Regime reviews and modifications UPDATE AND TRENDS 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency Recent cases programmes or other elements of the regime? 44 What were the key cases, judgments and other developments of the past year? The Hong Kong government is conducting a review of the Ordinance. No significant changes in the Ordinance are currently anticipated. A key In the past year there have been a number of developments in the Hong potential change would be the removal of existing exemptions under the Kong competition regime, including many ‘firsts’. Ordinance for statutory bodies. In January 2020, the Competition Commission initiated Competition Tribunal proceedings against an IT company and its director for Coronavirus exchanging pricing information with a competitor. This was the 46 What emergency legislation, relief programmes, enforcement Commission’s first case initiated by a successful leniency application. policies and other initiatives related to competitor conduct In March 2020, the Commission initiated Tribunal proceedings have been implemented by the government or enforcement against three publishers for alleged price-fixing, market sharing and bid authorities to address the pandemic? What best practices are rigging in relation to sales of textbooks in Hong Kong. This was the first advisable for clients? time the Commission took action against a parent company. The text- book companies were allegedly engaging in cartel conduct since 2011 In March 2020, the Commission published a statement on the applica- and continued their conduct after the Competition Ordinance came into tion of the Ordinance during the covid-19 outbreak. Specifically, the effect in December 2015. Commission recognises that competitors may need to have additional In May 2020, the Commission accepted commitments from three cooperation on a temporary basis, particularly to maintain the supply online travel agencies (Booking.com, Expedia and Trip.com) to remove of essential goods and services to consumers. While the Commission certain contractual restrictions from their agreements with accommo- encourages businesses to conduct self-assess their own conduct, it dation providers in Hong Kong. This was the first commitments decision also initiated an informal engagement process for covid-19 coopera- by the Commission and the first publicised investigation on vertical tion, whereby businesses may informally engage with the Commission agreements. to discuss how the Ordinance may apply to such cooperation. There is The Tribunal handed down its first pecuniary penalty judgment no public information on whether the Commission has considered or in April 2020. This judgment sets out a four-step methodology used to allowed any cooperation between competitors based on this informal calculate pecuniary penalties under the Ordinance. The Commission engagement process. subsequently published its penalties policy which adopts the method- Through its press release in August 2020, the Commission cautioned ology endorsed by the Tribunal. participants in government anti-epidemic subsidy programmes to The Commission also published a revised Leniency Policy and a comply with the Ordinance. Potential collusive conduct linked to these new Leniency Policy for Individuals in April 2020. subsidy programmes has been reported in the media and has come The Hong Kong Seaport Alliance, a contractual joint venture to the Commission’s attention. There is no indication whether the between four port terminals, has been the subject of an in-depth investi- Commission is also investigating this matter. gation relating to price alignment and capacity sharing. In August 2020, the Commission conducted public consultation on the proposed commit- ments offered by the Alliance. Among others, the Alliance has proposed to cap their prices in the affected market and implement measures to ensure no exchange of anticompetitive information between the members of the Alliance.

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Anima Shukla and Subodh Prasad Deo Saikrishna & Associates

LEGISLATION AND INSTITUTIONS • improvements in production and the distribution of goods and services; and Relevant legislation • the promotion of technical, scientific and economic development. 1 What is the relevant legislation? Joint ventures and strategic alliances The relevant legislation is the Competition Act 2002 (the Act). 5 To what extent are joint ventures and strategic alliances potentially subject to the cartel laws? Relevant institutions 2 Which authority investigates cartel matters? Is there Joint ventures and strategic alliances are potentially subject to the a separate prosecution authority? Are cartel matters cartel laws, except for those that increase efficiency. adjudicated or determined by the enforcement agency, a separate tribunal or the courts? APPLICATION OF THE LAW AND JURISDICTIONAL REACH

The Director General investigates cartel matters upon receiving a direc- Application of the law tion from the Competition Commission of India (CCI), the prosecution 6 Does the law apply to individuals, corporations and other authority. Cartel matters are adjudicated and determined by the CCI. entities?

Changes The law applies to individuals, corporations and to government depart- 3 Have there been any recent changes, or proposals for change, ments except those dealing with atomic energy, currency, defence to the regime? and space.

There has been no significant change in the regime, except for certain Extraterritoriality changes in the combination regime, most notable of which is the intro- 7 Does the regime apply to conduct that takes place outside the duction of an automatic system of approval for combinations under the jurisdiction (including indirect sales into the jurisdiction)? If Green Channel. so, on what jurisdictional basis?

Substantive law The regime applies to conduct that takes place outside India if such 4 What is the substantive law on cartels in the jurisdiction? conduct has an effect on competition in India. The Act empowers the CCI to inquire into extra-territorial conduct relating to agreements, abuse of The substantive law on cartels is contained in the Act. The Act, among dominant position or a combination thereof if they have or are likely to other things, prohibits agreements that cause or are likely to cause an have an AAEC on competition in India and pass such orders as it may ‘appreciable adverse effect on competition’ (AAEC) in India. The term deem fit in accordance with the Act. ‘agreement’ is very widely defined under the Act and includes any arrangement, understanding or action in concert. Under the Act, cartels Export cartels are agreements between competitors to fix prices or limit output or 8 Is there an exemption or defence for conduct that only affects share markets or indulge in bid rigging. Once an agreement to indulge customers or other parties outside the jurisdiction? in any of the aforesaid prohibited conduct is established, a presumption in law is made that such an agreement has caused an AAEC in India. Export cartels have been specifically exempt under the Act. Thus, a Consequently, the onus to prove that there is no AAEC is on the defence that the impugned conduct does not cause an AAEC in India, but charged parties. Unless the presumption of AAEC is rebutted to the only affects customers or other parties outside India, is valid. satisfaction of the CCI by the charged parties, the CCI will issue an order prohibiting the cartel and impose penalties as provided for under the Industry-specific provisions Act. If the charged parties furnish evidence to dispel the presumption of 9 Are there any industry-specific infringements? Are there any AAEC, then the CCI will consider any or all of the following factors given industry-specific defences or exemptions? under the Act to determine AAEC: • the creation of barriers for new market entrants; There are no industry-specific infringements and the Act applies univer- • the driving of existing competitors out of the market; sally to all sectors and industries. • the foreclosure of competition by hindering market entry; However, there are certain sector-specific laws which are adminis- • the accrual of benefits to consumers; tered by the respective sector regulators, such as the Telecom Regulatory

144 Cartel Regulation 2021 © Law Business Research 2020 Saikrishna & Associates India

Authority of India (TRAI), the Central Electricity Regulatory Commission INVESTIGATIONS and the and Natural Gas Regulatory Board. The Act provides for the option of mutual consultation between the CCI and such statu- Steps in an investigation tory authorities on a non-binding basis. In a matter involving an alleged 11 What are the typical steps in an investigation? overlap of jurisdiction between the CCI and the TRAI, the Supreme Court of India has observed in the case of Competition Commission of India v The Competition Commission of India (CCI) may initiate an investigation Bharti Airtel Limited and Others (Civil Appeal No. 3546 OF 2014, judg- suo moto, on reference by any statutory authority or receipt of infor- ment dated 1 October 2018) that the CCI, in the specific facts of the case, mation from any person, consumer or consumer association or trade can exercise its jurisdiction and see if the same amounts to ‘abuse of association based on a prima facie satisfaction that the Act has been dominance’ or ‘anticompetitive agreements’ once the mandate of TRAI violated. On such satisfaction, the CCI directs the Director General to and the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) investigate the matter and submit a report within a specified period. has been exercised and they have determined that the violation of the On consideration of such a report, and any objections thereto from the TRAI Act was due to a concerted practice. parties concerned, the CCI may either close the case or impose such The Act exempts intellectual property right holders from the penalties as deemed fit. The Director General cannot initiate an investi- purview of section 3 of the Act (prohibition on anticompetitive agree- gation on its own or appeal against the directions or orders of the CCI. ments) in exercising of their right to restrain any infringement of, or to The investigation commences upon the passing of an order by the impose reasonable conditions, as may be necessary for protecting any CCI, directing the Director General to carry out an investigation. Although of their rights that have been or may be conferred upon them under: there are no formal milestones in an investigation, the Director General • the Copyright Act 1957; typically sends multiple notices to the parties from time to time, seeking • the Patents Act 1970; exhaustive information from the charged parties, third parties and the • the Trade and Merchandise Marks Act 1958 or the Trade informant. The Director General also summons the parties to record their Marks Act 1999; statements on oath and seek clarification on documents and evidence on • the Geographical Indications of Goods (Registration and record. The investigation concludes with the submission of the report Protection) Act 1999; to the CCI, recommending whether a violation of the Act has occurred. • the Designs Act 2000; and The CCI will consider such reports and may direct further inves- • the Semi-conductor Integrated Circuits Layout-Design Act 2000. tigation or forward a copy of the non-confidential version of the investigation report to the parties for comments. On receipt of such In a matter involving an alleged overlap of jurisdiction between the CCI comments, the CCI will hear the parties and adjudicate the case by and the Controller General of Patents, the Delhi High Court vide judg- passing its final order. ment dated 20 May 2020 in WP (C) 1776/2016 and WP (C) 3556/2017, while reaffirming the earlier judgment passed in Telefonaktiebolaget Investigative powers of the authorities LM Ericsson v CCI & Anr(WP(C) 464/2014 decided on 30.03.2016, held 12 What investigative powers do the authorities have? Is court that there was no irreconcilable repugnancy or conflict between the approval required to invoke these powers? Competition Act and the Patents Act. The Court also clarified that the decision of the Supreme Court in Bharti Airtel Ltd cannot be construed The CCI and the Director General have the power to: to mean that wherever there is a statutory regulator, the complaint • summon and enforce the attendance of any person and examine must be first brought before the statutory regulator and examination such person under oath; of a complaint by the CCI is contingent on the findings of the statutory • require the discovery and production of documents; regulator. • receive evidence on affidavit; The Act exempts export cartels if such agreement relates exclu- • issue commissions for the examination of witnesses or sively to the production, supply, distribution or control of goods or documents; and provision of services for export from India. • requisition any public record, document or copy of such record or Further, the central government, vide notification dated 4 July document from any office. 2018, has also extended the exemption granted to the vessel sharing agreements of the liner shipping industry from the provisions of section Further, the Director General may conduct search and seizure opera- 3 of the Act for a period of three years, in respect of carriers of all nation- tions but only after obtaining a warrant from the chief metropolitan alities operating ships of any nationality from any Indian port provided magistrate in Delhi. that the central government may withdraw the said exemption, if any complaint about the fixing of prices, limitation of capacity or sales, or INTERNATIONAL COOPERATION allocation of markets or customers come to its notice. Inter-agency cooperation Government-approved conduct 13 Is there cooperation with authorities in other jurisdictions? 10 Is there a defence or exemption for state actions, If so, what is the legal basis for, and extent of, such government-approved activity or regulated conduct? cooperation?

There is no defence or exemption for state actions, government- Yes, there is cooperation with competition agencies in several jurisdic- approved activity or regulated conduct except that the sovereign tions. Proviso to section 18 of the Act states that the CCI may, for the functions being carried out by the central government related to atomic purpose of discharging its duties or performing its functions under the energy, currency, defence and space are exempt from the purview of the Act, enter into any memorandum or arrangement with the prior approval Act. Further, the CCI has ruled that only those activities of the govern- of the central government, with any agency of any foreign country. ment that are not regulatory or policy formulation functions fall within As per the information available on the CCI’s website, the CCI has the ambit of the Act. entered into memoranda of understanding with the following authori- ties as of March 2019: www.lexology.com/gtdt 145 © Law Business Research 2020 India Saikrishna & Associates

• the Federal Trade Commission and the Department of Justice of agreement has not caused any AAEC. The level of proof required is the United States; only ‘balance of probabilities’. As per the decisional practice of CCI, it is • the Director-General Competition of the European Union; observed that the threshold for the same is very low. • the Federal Antimonopoly Service of Russia; • the Australian Competition and Consumer Commission; Circumstantial evidence • the Competition Bureau of Canada; and 17 Can an infringement be established by using circumstantial • the competition authorities of the ‘BRICS’ countries Brazil, China, evidence without direct evidence of the actual agreement? and South Africa. Infringement can be established by using circumstantial evidence Interplay between jurisdictions without direct evidence of the actual agreement. The CCI has relied 14 Which jurisdictions have significant interplay with your on circumstantial evidence to determine cartel in large number of jurisdiction in cross-border cases? If so, how does this affect cases. Circumstantial evidence such as emails, call records, similar IP the investigation, prosecution and penalising of cartel activity addresses, hiring of same agents, meetings between parties, timing of in cross-border cases in your jurisdiction? filing of bids, similar documentation, time of submission of documenta- tions for bids and such like have been relied upon to infer and determine The information regarding the effect of cross-border cases on the the existence of cartels, even when no direct evidence was found. investigation, prosecution and penalising of cartel activity in India is very scant. Appeal process The CCI has thus far issued only one decision involving cartel 18 What is the appeal process? activity in a cross-border case, namely, Suo Motu Case No. 07 (01) of 2014 in respect of Cartelisation in the supply of Electric Power Any party aggrieved by any direction, decision or order of the CCI, Steering Systems against NSK Limited, Japan and Others. It is noted passed under certain sections specified in the Act, may prefer an appeal from the public version of the order that based on leniency application to the Appellate Tribunal, namely, the National Company Law Appellate filed by NSK Ltd Japan, the CCI ordered an inquiry in the matter on Tribunal (NCLAT) within 60 days from the date of receipt of such direc- 17 September 2014. During the course of investigation by the Director tion, decision or order of the CCI. The NCLAT may entertain an appeal General, JTEKT Corporation, Japan also filed leniency application before even after the expiry of the 60 days, if it is satisfied that there was the CCI. As per the CCI’s decision in the matter dated 9 August 2019, the sufficient cause for not filing it within that period. While an order of period of inquiry was from 2005 to only 25 July 2011, the date on which the CCI directing initiation of an investigation by the Director General the Japanese Fair Trade Commission conducted an on-site inspection of is not appealable, an order regarding closure of a case or imposition of four Japanese companies including NSK and JTEKT, in connection with penalties on the enterprise or its officials for violation of the Act, among alleged cartelisation in another product. There are no further details others, are appealable. The NCLAT may pass such orders thereon as it regarding the said order of the CCI. thinks fit, confirming, modifying or setting aside the direction, decision Considering the fact that NSK provided vital disclosures by submit- or order appealed against. In other words, there is a plenary review on ting evidence of the cartel, which enabled the CCI to form a prima facie merits, of fact and law. Though there are no fixed time lines for disposal opinion regarding the existence of the cartel and cooperated genuinely, of an appeal, the Act stipulates that every appeal shall be dealt with by fully, continuously and expeditiously throughout the investigation and the Tribunal as expeditiously as possible and endeavour to dispose of further proceedings before the CCI, it was granted the benefit of 100 the appeal within six months from the date of receipt of the appeal. per cent reduction in its penalty. Further, JTEKT which was second to The chairperson of NCLAT shall be a person who is or has been approach the CCI as a lesser penalty applicant was also granted the a judge of the Supreme Court or the chief justice of a High Court. The benefit of 50 per cent reduction in penalty in terms of the Lesser Penalty NCLAT is guided by the principles of natural justice, the provisions of Regulations. The concerned individuals of these companies, who were the Act and the rules made thereunder by the central government. It found liable for the infringing conduct, were granted reductions in has the power to regulate its own procedure, including the places where penalty amount as granted to NSK and JTEKT respectively. they shall have their sittings. Every proceedings before the NCLAT is deemed to be judicial proceedings within the meaning of certain speci- CARTEL PROCEEDINGS fied provisions of the Indian Penal Code 1860. Further, the NCLAT is deemed to be a civil court for certain specified provisions of the Code Decisions of Criminal Procedure 1973. The orders of NCLAT are enforceable like a 15 How is a cartel proceeding adjudicated or determined? decree made by a civil court in a suit pending before it. Any party aggrieved by any direction, decision or order of the Cartel proceedings are adjudicated by the CCI after considering the NCLAT may prefer an appeal to the Supreme Court within 60 days from investigation report submitted by the Director General and the written the date of receipt of such direction, decision or order of the NCLAT. The submissions of the charged parties on the same, including on the standard of review by the NCLAT and the Supreme Court is of ‘balance quantum of penalty. Further, the charged parties are also accorded of probabilities’. opportunity to make oral submissions before the CCI. SANCTIONS Burden of proof 16 Which party has the burden of proof? What is the level of Criminal sanctions proof required? 19 What, if any, criminal sanctions are there for cartel activity?

The burden to prove that there is an ‘agreement’ amongst the compet- There are no criminal sanctions for cartel activities. itors, to fix prices or limit output or share markets or indulge in bid rigging, is upon the Director General. Thereafter, the burden shift to the charged parties to prove that there is no agreement or that such

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Civil and administrative sanctions Director disqualification 20 What civil or administrative sanctions are there for cartel 23 Are individuals involved in cartel activity subject to orders activity? prohibiting them from serving as corporate directors or officers? Apart from a cease and desist order, the Competition Commission of India (CCI) may impose on an enterprise engaged in cartel activity a There is no provision in the Act to the effect that individuals involved monetary penalty of up to three times of its relevant profit for each year in cartel activity can be prohibited from serving as corporate directors of the continuance of the cartel or 10 per cent of its relevant turnover for or officers. each year of the continuance of the cartel, whichever is higher. Monetary penalties are invariably imposed in cases where an offence is made out. Debarment However, in two of the recent cartel and bid rigging decisions, the 24 Is debarment from government procurement procedures CCI did not impose any monetary penalties but issued only a cease- automatic, available as a discretionary sanction, or not and-desist order (In Re: Cartelisation in Industrial and Automotive available in response to cartel infringements? Bearings – Case No. 5 of 2017 decided on 5 June 2020 and In Re: Chief Materials Manager, South Eastern Railway v. Hindustan Composites Debarment from government procurement procedures is not automatic Limited & Ors – Reference Case No. 3 of 2016 decided on 10 July 2020). but is available as a discretionary sanction subject to a show cause In the Automotive Bearing case, though the CCI observed that notice in response to cartel infringements. the parties have been unable to rebut the presumption of AAEC raised in the matter and that contravention of the provisions of Act stands Parallel proceedings established, it held that the ends of justice would be met, in light of 25 Where possible sanctions for cartel activity include criminal the peculiar facts and circumstances of the present case, if the parties and civil or administrative penalties, can they be pursued ceased such cartel behaviour and desisted from indulging in it in future. in respect of the same conduct? If not, when and how is the The CCI chose not to impose any monetary penalty, for the second choice of which sanction to pursue made? time in a row, in the case involving bid rigging in the supply of composite brake blocks to the Indian Railways. In arriving at such a decision, the CCI The Act provides for only civil sanctions. considered that the companies not only cooperated but even admitted to their role in the anticompetitive agreement, the small annual turnover PRIVATE RIGHTS OF ACTION in the segment, the prevailing economic situation arising due to the outbreak of the covid-19 pandemic and the various measures under- Private damage claims taken by the government of India to support the liquidity and credit 26 Are private damage claims available for direct and indirect needs of viable micro, small and medium-sized enterprises to help them purchasers? Do purchasers that acquired the affected withstand the impact of the current shock. product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the Guidelines for sanction levels prices they paid (‘umbrella purchaser claims’)? What level of 21 Do fining or sentencing principles or guidelines exist? If yes, damages and cost awards can be recovered? are they binding on the adjudicator? If no, how are penalty levels normally established? What are the main aggravating Based on the CCI’s findings or the findings of the appellate tribunal in an and mitigating factors that are considered? appeal, a claim for compensation can be made by any authority or enter- prise or any person for any loss or damage shown to have been suffered No specific guidelines or sentencing principles for calculating penalties as a result of any contravention committed by an enterprise. However, exist. However, the CCI accords an opportunity to the parties charged no case of damages has been decided by the Appellate Tribunal. Thus, and considers their written and oral submissions on the quantum of there is no clarity on the issues whether damage claims are limited penalties. As regards to the quantum of penalty, the CCI holds that only to direct purchasers or whether the indirect purchasers are also penalties must be commensurate with the seriousness of infringement permitted to raise such claims, including the manner in which the pass- and must also act as a deterrent. Penalties are imposed on the basis through would be dealt with. Similarly, there is no clarity whether the of the relevant turnover or the relevant profit, as the case may be, of purchasers that acquired the affected product from non-cartel members an enterprise. Individuals and officials of enterprises are also imposed also have the ability to bring claims based on alleged parallel increases penalties of up to 10 per cent of their average income of the preceding in the prices they paid. Further, there is no clarity also regarding the years as reflected in their respective income tax returns. level of damages and costs that can be recovered. In computing penalties, the CCI weighs in the aggravating and miti- gating factors in the facts and circumstances of each case, but there is Class actions little clarity or certainty as to what could or would be considered as a 27 Are class actions possible? If so, what is the process for such mitigating and aggravating factors in any particular case. cases? If not, what is the scope for representative or group actions and what is the process for such cases? Compliance programmes 22 Are sanctions reduced if the organisation had a compliance With the permission of the Appellate Tribunal, one or more such person programme in place at the time of the infringement? having the same interest may make an application for class action. Thereafter, the appellate tribunal shall give notice of the institution of Existence of a robust compliance programme at the time of the infringe- the compensation case to all interested persons, either by personal ment would certainly be considered as a mitigating factor by the CCI to service or public advertisement. Further, any person on whose behalf or grant a reduction in penalties. However, there is no certainty regarding for whose benefit the compensation case has been instituted may apply the extent to which the CCI may grant any such reduction. to the Appellate Tribunal to be made a party to such case.

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COOPERATING PARTIES Approaching the authorities 31 Are there deadlines for initiating or completing an application Immunity for immunity or partial leniency? Are markers available and 28 Is there an immunity programme? If so, what are the basic what are the time limits and conditions applicable to them? elements of the programme? What is the importance of being ‘first in’ to cooperate? A leniency applicant may make an application containing all the material information as specified in the schedule to the Competition Commission A leniency programme is available under the Act, which is contained of India (Lesser Penalty) Regulations 2009, or may contact, orally or in the Competition Commission of India (Lesser Penalty) Regulations through email or fax, the designated authority for furnishing the infor- 2009. A leniency applicant must be included in the cartel and must make mation and evidence relating to the existence of a cartel. However, no ‘full, true and vital disclosures’ to the CCI about the cartel. An applicant such application can be entertained if the Director General has already may be granted the benefit of a reduction in a penalty of up to 100 per submitted its investigation report in the matter. cent if it is the first to make a vital disclosure by submitting evidence Upon consideration of the matter within five working days, the of a cartel, enabling the CCI to form a prima facie opinion regarding the CCI shall mark the priority status of the applicant and the designated existence of the cartel, and the CCI did not have sufficient evidence to authority shall convey the same to the applicant either ny telephone, form such an opinion at the time of application. email or fax. The applicants subsequent to the first applicant may also be If the information received is oral or through email or fax, the CCI granted the benefit of a reduction in the penalty on making a disclosure shall direct the applicant to submit a written application containing all by submitting evidence that, in the CCI’s opinion, may provide signifi- the material information as specified in the schedule within a period not cant added value to evidence already in the CCI’s or Director General’s exceeding 15 days. The date and time of receipt of the application by the possession. The applicant marked second in the priority status may be CCI shall be the date and time as recorded by the designated authority granted a penalty reduction of up to 50 per cent while the applicant or as recorded on the server or the facsimile transmission machine of marked as third, and all subsequent applicants in the priority status the designated authority. may be granted a reduction of up to 30 per cent. The CCI has discretion Unless the evidence submitted by the first applicant has been eval- in regard to the reduction in penalty, which may be exercised with due uated, the next applicant shall not be considered by the CCI. regard to: Where the application, along with the necessary documents is not • the stage at which the applicant has come forward with the received within a period of 15 days or during the further period as may disclosure; be extended by the CCI, the applicant may forfeit its claim for priority • the evidence already in the CCI’s possession; status and consequently for the benefit of to a lesser penalty. • the quality of the information provided; and Where the CCI is of the opinion that the applicant has not provided • the full facts and circumstances of the case. full and true disclosure of the information and evidence as referred and described in the schedule or as required by the CCI, from time to time, Subsequent cooperating parties it may take a decision after considering the facts and circumstances of 29 Is there a formal programme providing partial leniency for the case and upon providing an opportunity of hearing to such applicant, parties that cooperate after an immunity application has been reject the application. made? If so, what are the basic elements of the programme? The CCI, through its designated authority, shall provide written If not, to what extent can subsequent cooperating parties acknowledgement on the receipt of the application informing the expect to receive favourable treatment? priority status of the application but merely on that basis, it shall not entitle the applicant to a lesser penalty. Unless the evidence submitted Those applying to the leniency programme following the first appli- by the first applicant has been evaluated, the next applicant shall not be cant may also be granted the benefit of a reduction in the penalty on considered by the CCI. making a disclosure by submitting evidence that, in the CCI’s opinion, Where the benefit of the priority status is not granted to the first may provide significant added value to evidence already in the CCI’s applicant, the subsequent applicants shall move up in order of priority or Director General’s possession. The applicant marked second in the for grant of priority status by the CCI and the procedure prescribed priority status may be granted a penalty reduction of up to 50 per cent above, as in the case of the first applicant, shall apply mutatis mutandis. while the applicant marked as third, and all subsequent applicants in Leniency applicants are required to: the priority status may be granted a reduction of up to 30 per cent. The • cease further participation in the cartel from the time of the disclo- CCI has discretion in regard to the reduction in penalty, which may be sure, unless otherwise directed by the CCI; exercised with due regard to: • provide vital disclosure in respect of the violation; • the stage at which the applicant has come forward with the • provide all relevant information, documents and evidence as may disclosure; be required by the CCI; • the evidence already in the CCI’s possession; • cooperate genuinely, fully, continuously and expeditiously • the quality of the information provided; and throughout the investigation and other proceedings before • the full facts and circumstances of the case. the CCI; and • not conceal or destroy any relevant document that may contribute Going in second to the establishment of the cartel. 30 How is the second cooperating party treated? Is there an ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, Accordingly, the CCI may decline or withdraw leniency if the leniency how does it operate? applicant breaches any of the conditions stipulated above for grant of leniency. There is no provision for an ‘immunity plus’ or ‘amnesty plus’ option.

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Cooperation Settlements 32 What is the nature, level and timing of cooperation that 34 Does the investigating or prosecuting authority have the is required or expected from an immunity applicant? Is ability to enter into a plea bargain, settlement, deferred there any difference in the requirements or expectations prosecution agreement (or non-prosecution agreement) or for subsequent cooperating parties that are seeking partial other binding resolution with a party to resolve liability and leniency? penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? Leniency applicants must furnish full, true and vital information regarding the existence of a cartel before the report of the investigation Settlements, plea bargains or other negotiated resolutions are not avail- has been submitted by the Director General to the CCI. An application for able under the Act. a reduced penalty must include the following: • the name and address of the applicant and its authorised repre- Corporate defendant and employees sentative, as well as of all other enterprises in the cartel; 35 When immunity or partial leniency is granted to a corporate • where the applicant is based outside India, an address and contact defendant, how will its current and former employees be details for them in India for communication purposes; treated? • a detailed description of the alleged cartel arrangement, including its aims and objectives, and the details of activities and functions When immunity is granted to an enterprise, its current and former carried out for securing such aims and objectives; employees are granted reduction in penalties similar to the enterprise. • the goods or services involved; • the geographic market covered; Dealing with the enforcement agency • the commencement and duration of the cartel; 36 What are the practical steps for an immunity applicant • the estimated volume of business affected by the cartel; or subsequent cooperating party in dealing with the • the details of all individuals, including their position, office and resi- enforcement agency? dence locations, who are or have been associated with the cartel, including those involved on behalf of the applicant; The immunity applicant must reach out to the CCI at the earliest and • the details of other competition authorities, forums or courts, if any, make disclosure of full facts. Irrespective of their marker status, the which have been approached or are intended to be approached in subsequent cooperating parties must cooperate genuinely, fully, relation to the alleged cartel; continuously and expeditiously throughout the investigation and other • a descriptive list of evidence regarding the nature and content of proceedings before the CCI. the evidence; and • any other material information. DEFENDING A CASE

In addition to the above, the leniency applicant may also be required to Disclosure provide other information, documents or evidence as may be required 37 What information or evidence is disclosed to a defendant by by the Director General or the CCI. the enforcement authorities? There are no differences in the requirements or expectations for subsequent cooperating parties that are seeking partial leniency. While the Competition Commission of India (CCI) and the Director General are mandated to treat the identity of the leniency applicants Confidentiality as well as the information, documents and evidence furnished by such 33 What confidentiality protection is afforded to the immunity applicants as confidential, these may be disclosed to any party for the applicant? Is the same level of confidentiality protection purposes of investigation. applicable to subsequent cooperating parties? What information will become public during the proceedings and Representing employees when? 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should The identity of the leniency applicants and the information, documents a present or past employee be advised to obtain independent and evidence furnished by them are accorded confidentiality protection. legal advice or representation? However, the identity of an applicant or the information, documents and evidence submitted by them may be disclosed if: Counsel may represent employees under investigation in addition to the • such disclosure is required by law; corporation that employs them. In cases where there is a conflict in the • the applicant has agreed to such disclosure in writing; or stand or submissions of the past or present employees with that of the • there has been a public disclosure by the applicant. corporation, it would be advisable to obtain independent legal advice or representation. In cases where the Director General deems it necessary to disclose the information, documents and evidence to any party for the purposes Multiple corporate defendants of investigation, and the applicant has not agreed to such disclosure, 39 May counsel represent multiple corporate defendants? Does the Director General may disclose such information, documents and it depend on whether they are affiliated? evidence to such party after recording the reasons in writing and taking prior approval from the CCI. Counsel may represent multiple corporate defendants provided there In cartel cases, the CCI issues two versions of its final order, is no conflict or conflict waiver has been granted by the corporate namely, a non-confidential qua parties version and a public version with defendants. a view to protect and maintain the confidentiality of the parties.

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Payment of penalties and legal costs • collected money from the prospective stockists for issuance 40 May a corporation pay the legal penalties imposed on its of SAI to them; and employees and their legal costs? • required the promotion-cum-distributor agents of pharma compa- nies to obtain product availability information (PAI) from BCDA There is no prohibition in this regard under the Competition Act 2002 after paying monetary sums to them in the form of donations. (the Act); accordingly, a corporation may pay the legal penalties imposed on its employees as well as their legal costs. The CCI also held two pharmaceutical companies, Alkem and Macleods, guilty of entering into an anticompetitive agreement with BCDA, Taxes whereby these companies, after issuing offer letters of stock shipments 41 Are fines or other penalties tax-deductible? Are private to prospective stockists, demanded the stockist submit SAIs, NOCs, damages payments tax-deductible? approval letters and circulation Letter from BCDA before supplies of drugs could be made to them. The CCI rejected the plea of the pharma- Fines or penalties are not tax-deductible. Similarly, damages awards ceutical companies that they were indulging in the impugned conduct are also not tax-deductible as they are a fall out of punitive action for under threat, duress and directions from BCDA. However, apart from violating the Act. issuing a cease-and-desist order, the CCI did not impose any monetary penalty on any of the parties. Further, it directed BCDA to conduct International double jeopardy advocacy events by way of outreach activities with its district and zone 42 Do the sanctions imposed on corporations or individuals take committees and their office bearers to impress upon them the need to into account any penalties imposed in other jurisdictions? In comply with the provisions of the Act in letter and in spirit. private damage claims, is overlapping liability for damages in other jurisdictions taken into account? Industrial and Automotive Bearings The second cartel decision by the CCI during the year has been in As per the decisional practice of the CCI dated 31 January 2018 in Case the Suo Moto Case No. 05/2017 (In Re: Cartelisation in Industrial and Nos. 7 and 30 of 2012 (against Google LLC for abusing its dominant posi- Automotive Bearings). The case was pursued upon receipt of an appli- tion), it has not taken into account any penalties imposed upon Google cation under the Competition Commission of India (Lesser Penalty) in other jurisdictions. Thus, individuals or companies that have been Regulations, 2009, which disclosed cartelisation in the domestic indus- penalised elsewhere are likely to be subject to double jeopardy in India. trial and automotive bearings market from 2009 to 2014. Pursuant to In its fining decisions, the CCI considers only the direct sales of the the investigation by the Director General, the CCI found evidence that companies being fined. four industrial and automotive bearings manufacturers had forged an As regards the issue of overlapping liability for damages in other agreement in relation to price revisions and minimum percentage of jurisdictions, there is no clarity as not even one damages decision has price increases to be quoted to automotive and industrial original equip- been handed over under the Act thus far in India. It is therefore to be ment manufacturers (OEMs), which was established by way of email seen whether the Appellate Tribunal, which is empowered to decide communications between the cartelists as well as minutes of meetings damages and compensation claims under the Act, will take into account attended by the representatives of the various companies where such overlapping liability for damages in other jurisdictions or not. price-related discussions took place. The parties contended that there was no ‘appreciable adverse Getting the fine down effect on competition’ (AAEC) in the market, which was was evident from 43 What is the optimal way in which to get the fine down? the price analysis done in the Director General Report itself. The parties further contended that even the OEMs, when asked by The CCI considers all the facts on record while deciding the quantum of the Director General, stated that they could not perceive any instance of penalties. Thus, the timing and extent or quality of cooperation, a pre- cartelisation amongst the parties. It was also contended that the OEMs, existing compliance programme, or compliance initiatives undertaken in any case, exert significant countervailing buying power in the market. after the investigation has commenced may affect the nature or magni- In its decision, the CCI observed that the contention of the parties that tude of the sanctions. the price revisions quoted to the OEMs by them were not in accordance with what had been decided between them, does not rebut the statutory UPDATE AND TRENDS presumption of AAEC under the Act. The CCI opined that the very fact of the parties meeting with each other to decide the price revisions to be Recent cases quoted to the OEMs, compromised their independence, enabling them to 44 What were the key cases, judgments and other developments quote price revisions to the OEMs, different than what they would have of the past year? otherwise quoted independently. The CCI, therefore, concluded that the parties had indulged in cartelisation and price-fixing. The CCI also Over the last year, the Competition Commission of India (CCI) has held those individuals, who were in charge of and responsible to their decided three cartel cases. respective companies for the conduct of the business of the compa- nies, to be liable for the anticompetitive conduct. Even though the CCI Bengal Chemists and Druggists Association held that the bearings manufacturers were operating a cartel, it did not The CCI, vide its decision dated 12 March 2020 (in clubbed case impose any monetary penalty and simply observed that ‘ends of justice numbers 36/2015, 31/2016 & 58/2016), held the Bengal Chemists would be met if the parties cease such cartel behaviour and desist from and Druggists Association (BCDA) et el to be guilty of anticompetitive indulging in it in future’. conduct. The BCDA: • mandated that the pharmaceutical companies will not supply Chief Materials Manager, South Eastern Railway v Hindustan drugs to its new stockists unless such stockists: Composites Limited & Ors • obtained a prior stock availability information (SAI)/no objec- The third case pertains to bid rigging in tenders issued by different zones tion certificate (NOC) from BCDA; and of the Indian Railways (In Re: Chief Materials Manager, South Eastern

150 Cartel Regulation 2021 © Law Business Research 2020 Saikrishna & Associates India

Railway v. Hindustan Composites Limited & Ors – Reference Case No. Structure and composition of the CCI 03 of 2016). In the information filed by the chief managers of the various • Introducing a governing board to oversee advocacy and quasi- divisions of the Indian railways, it was alleged that manufacturers and legislative functions, leaving adjudicatory functions to the suppliers of composite brake blocks (CBBs) had submitted identical bids whole-time members; in the tenders and had also offered identical reductions in quoted rates • integrating the Director General’s office with the CCI to bring about in the subsequent negotiations. The Director General found evidence of administrative efficiencies in the direction and scope of investiga- collusion from 2007-2019 amongst the companies, including Whatsapp tions, accompanied by functional autonomy for the Director General messages, SMS messages, and call detail records of the personnel of and meaningful internal division of investigation and adjudication the companies. Further, the company officials also made admissions in functions; their statements recorded by the Director General during the course of • opening regional offices of the CCI for carrying out non-adjudica- the investigation. tory functions such as investigation and advocacy; The charged parties contested by stating that even though they had • setting up of a dedicated bench of the NCLAT to expeditiously hear indulged in bid rigging, there was no AAEC in the market for CBBs in and dispose of competition appeals; and India. Further, the parties also submitted that the Indian Railways being • incorporating additional enforcement mechanisms in the form of a monopolistic buyer controls the price and quantity to be supplied to settlement and commitment mechanisms In respect of anticom- it and that the opposite parties do not have any control over the price petitive vertical agreements and abuse of dominance, that may or quantity. be achieved outside of an otherwise relatively lengthy enforce- The CCI rejected both these arguments. It dismissed the plea of ment process. the charged parties that there is no contravention of the provisions of the Act because no AAEC has allegedly been caused as a result of the Combinations alleged cartel between the parties as being misdirected and untenable • Introducing a ‘Green Channel’ for combination notifications having in the face of clear legislative intent whereby even the conduct which no major concerns regarding appreciable adverse effects on can potentially cause AAEC, is prohibited. With regard to the Indian competition; Railways being a monopolistic player with power to determine prices • combinations arising out of the insolvency resolution process and quantity, the CCI noted that the said contention of the charged under the Insolvency and Bankruptcy Code to be eligible for ‘Green parties are also misconceived. The CCI observed that in the presence of Channel’ approvals; overwhelming documentary evidence of cartelisation, putting emphasis • introducing a ‘material influence’ standard to determine what on market conditions in isolation is of no avail. It further held that the amounts to ‘control’; Indian Railways is free as a consumer to make a choice as far as selection • all permissible time exclusions from the 210-day timeline for of goods or services provider is concerned and therefore negotiations assessment of mergers to be codified within the Act itself; and and bargaining made by the Indian Railways do not detract from the • introducing additional thresholds to review combinations of busi- factum of bid rigging indulged in by the vendors in flagrant violation ness that are not structured traditionally – especially where they of the provisions of the Act. In light of the above, the CCI concluded form part of digital markets – when considering non-notifiable that OP–1 to OP–10 and their respective individuals had indulged in mergers, if the transaction value or the deal value of a combination cartelisation in the CBB market in India, at least from 2009 until 2017, by exceeds a certain limit. means of directly or indirectly determining prices, allocating markets, co-ordinating bid response and manipulating the bidding process, which ‘Hub and spoke’ agreements had an AAEC within India. Incorporating express provision to identify ‘hub and spoke’ agree- However, the CCI chose not to impose any monetary penalty in this ments in order to provide clarity on the liability of hubs as well as to case, making it the second case in a row where no monetary penalty address agreements that do not fit within typical horizontal or vertical has been imposed despite the CCI returning a finding that the charged anticompetitive agreements due to market realities shifting from tradi- parties have indulged in the cartel or bid rigging conduct. In arriving at tional norms. its decision, the CCI considered that the companies not only cooperated but even admitted to their role in the anticompetitive agreement, the Penalties small annual turnover in the segment, the prevailing economic situa- CCI must be mandated to issue guidelines on the imposition of penalty. tion arising due to the outbreak of global pandemic of covid-19 and the various measures undertaken by the government of India to support the Definitions liquidity and credit needs of viable micro, small and medium enterprises • ‘Cartels’ should include buyers’ cartels; to help them withstand the impact of the current shock. • ‘consumer’ should include government departments or agencies; and Regime reviews and modifications • ‘turnover’ (used for the purpose of determining combina- 45 Are there any ongoing or anticipated reviews or proposed tions) should exclude intra-group sales, indirect taxes and trade changes to the legal framework, the immunity/leniency discounts. programmes or other elements of the regime? Leniency The government of India had constituted a Competition Law Review Provide a ‘leniency plus’ regime, which incentivises applicants to come Committee (CLRC) on 1 October 2018 to review the existing competition forward with disclosures regarding multiple cartels by providing a law framework and make recommendations to further strengthen the penalty reduction to a leniency applicant in the first cartel which will framework to, among other things, meet new economic challenges. be over and above any other penalty reductions that such an applicant The recommendations of the CLRC, which entail amendments may receive under the normal lesser penalty application framework; in the Act, have not been implemented pending necessary legislative and enable a leniency applicant to withdraw leniency application within approval by both the houses of India’s parliament. a prescribed time period but to allow the CCI to use the information The key recommendations are: submitted by the leniency applicant in accordance with applicable laws. www.lexology.com/gtdt 151 © Law Business Research 2020 India Saikrishna & Associates

Compensation To allow applications for compensation to be filed post the determina- tion of an appeal by the Supreme Court instead of NCLAT.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are Anima Shukla advisable for clients? [email protected] Subodh Prasad Deo Considering the coronavirus pandemic and the restrictions on the [email protected] movement of people, CCI allowed parties to file electronically antitrust cases as well as combination notices including Green Channel notifica- tions. and has deferred hearings of non-urgent cases. It has also made 8th Floor, VJ Business Tower the Pre-Filing Consultation (PFC) facility available through video confer- Plot No A-6, Sector 125, Noida Uttar Pradesh 201301 ence. A dedicated helpline was also set up to attend to the queries of India stakeholders during the pandemic. Tel: +91 120 463900 The CCI issued Advisory to Businesses in time of COVID-19 on 19 www.saikrishnaassociates.com April 2020. It was noted in the advisory that businesses may need to coordinate certain activities, by way of sharing data on stock levels, timings of operation, sharing of a distribution network and infrastruc- ture, transport logistics, R&D, production etc to ensure continued supply and fair distribution of products (eg, medical and healthcare products such as ventilators, face masks, gloves, vaccines etc and essential commodities) and services (eg, logistics, testing etc). It was highlighted that the Act prohibits conduct that causes or is likely to cause an appre- ciable adverse effect on competition and further that the Act presumes certain concerted actions between competitors to cause an appreciable adverse effect on competition. It was also stated that such presumption is not applicable to joint ventures if such agreements increase effi- ciency in production, supply, distribution, storage, acquisition or control of goods or provision of services. Also, while conducting competition assessment, the Act enables the CCI to have due regard, among others, to the accrual of benefits to consumers; improvement in production or distribution of goods or provision of services; and promotion of tech- nical, scientific and economic development by means of production or distribution of goods or provision of services. Thus, the Act’s safeguards protect businesses from sanctions for certain coordinated conduct were highlighted, provided such arrangements result in increased efficien- cies. However, it was cautioned that only such conduct of businesses which is necessary and proportionate to address concerns arising from covid-19 will be considered. Businesses were, however, warned not to take advantage of covid-19 to contravene any of the provisions of the Act. The CCI has commenced virtual hearing of cases after issuing a standard operating procedure for the same.

152 Cartel Regulation 2021 © Law Business Research 2020 Japan

Eriko Watanabe and Koki Yanagisawa Nagashima Ohno & Tsunematsu

LEGISLATION AND INSTITUTIONS Apart from the foregoing, no fundamental legislative amendment to the substantive law under the Antimonopoly Law or major changes Relevant legislation in the JFTC’s enforcement thereunder with regard to cartels have been 1 What is the relevant legislation? made since 2011, unlike those made in recent years to strengthen the power of the JFTC. The Law Concerning Prohibition of Private Monopoly and Maintenance Having said that, the amendment to the Antimonopoly Law that of Fair Trade (Law No. 54 of 1947) (the Antimonopoly Law), as amended became effective as of 1 April 2015 abolished the JFTC’s administrative from time to time, is the legislation that prohibits cartels. In addition proceedings and the JFTC orders are now directly subject to review to the prohibition under the Antimonopoly Law of Japan, collusion in by judicial courts, without going through administrative proceed- a public bid is subject to penalty under the Criminal Code. The Law ings, under the applicable administrative procedure laws. More Concerning Exclusion and Prevention of Public Bid Rigging and Actions specifically, a defendant company may file a complaint directly with against Involved Officers provide the measures that the Japan Fair the Tokyo District Court to quash JFTC orders. Complaints to quash Trade Commission (JFTC) may take against the activities of government the JFTC orders will be examined by a panel of three or five court officers involved in public bid rigging. judges. The substantial evidence rule which is applicable to actions for quashing JFTC decisions before the Tokyo High Court and in which Relevant institutions the court is bound by the JFTC’s findings was abolished. Namely, the 2 Which authority investigates cartel matters? Is there Tokyo District Court is not bound by the JFTC’s findings of fact and a a separate prosecution authority? Are cartel matters defendant company may submit evidence to the judicial court proceed- adjudicated or determined by the enforcement agency, a ings without such restrictions as imposed by the substantial evidence separate tribunal or the courts? rule. A JFTC order will be quashed if the judicial court finds that the order is contrary to the laws. The JFTC is the sole enforcement agency established by the Furthermore, the commitment procedure, the system to resolve Antimonopoly Law. In contrast to the United States, there is no enforce- alleged violations of Antimonopoly Law voluntarily by consent of a ment agency in Japan that shares the power and responsibility to enforce defendant company, was introduced on 30 December 2018, pursuant to the Antimonopoly Law with the JFTC. The Public Prosecutors’ Office is in the amendment to the Antimonopoly Law included in the Act to Amend charge of criminal procedures after the JFTC files an accusation. the Trans-Pacific Partnership Agreement Related Laws. Under the The JFTC is the investigator and prosecutor with regard to offences commitment procedure, an entrepreneur that receives a notice from the under the Antimonopoly Law. The JFTC consists of a chair and four JFTC regarding alleged violation of the Antimonopoly Law may devise commissioners. The General-Secretariat, headed by the secretary- a plan to take necessary measures to cease such an alleged violation general, is attached to the JFTC for the operation of its business and and file a petition for approval of such plan with the JFTC, and if such consists of the Secretariat, the Investigation Bureau and the Economic plan is approved, the JFTC determines not to render a cease-and-desist Affairs Bureau (including the Trade Practices Department). In general, order and administrative surcharge payment order against the peti- the Investigation Bureau is in charge of investigations and issuance of tioner. However, the Antimonopoly Law provides that such commitment orders under the Antimonopoly Law. procedure does not apply to cartel conducts. Collusion in a public bid under the Criminal Code is subject to the investigation by the Public Prosecutors’ Office. Substantive law 4 What is the substantive law on cartels in the jurisdiction? Changes 3 Have there been any recent changes, or proposals for change, Under the Antimonopoly Law, an agreement or understanding among to the regime? competitors to eliminate or restrict competition among them that substantially restrains competition in a particular field of trade is prohib- On 19 June 2019, the amendment to the Antimonopoly Law (2019 ited as an unreasonable restraint of trade (article 3, latter part). While Amendment) was enacted by the national diet and, on 26 June 2019, the Antimonopoly Law does not explicitly limit the scope of conduct in was promulgated. The regime of cartel regulations (ie, administra- violation of the Antimonopoly Law as an unreasonable restraint of trade tive sanctions and the leniency programme) will substantially change to that among competitors, the Tokyo High Court, in a 9 March 1953 when the 2019 Amendment becomes fully effective. The effective date decision, held that only restrictions among competitors constitute an for most of the major changes will be 25 December 2020, while some unreasonable restraint of trade. Unreasonable restraint of trade by a of them became effective as of 26 July 2019 and 1 January 2020, trade association is also prohibited under article 8, paragraph 1, item 1 respectively. of the Antimonopoly Law. www.lexology.com/gtdt 153 © Law Business Research 2020 Japan Nagashima Ohno & Tsunematsu

Cartels and bid rigging are typical examples of an unreasonable presence in Japan. The provisions therefor also indicate that the JFTC restraint of trade prohibited under the Antimonopoly Law. Agreements has jurisdiction over the conduct of such corporations outside Japan that that cover topics such as price fixing, production limitation, and market have no presence (eg, a subsidiary, business office or agent) in Japan. and customer allocation are typical examples of cartels. Note that joint activities, collaboration or alliance among competitors that have Export cartels pro-competitive effects (and therefore should be subject to the rule of 8 Is there an exemption or defence for conduct that only affects reason analysis) are also reviewed under the latter part of article 3 of customers or other parties outside the jurisdiction? the Antimonopoly Law. While the latter part of article 3 of the Antimonopoly Law only The application of the Antimonopoly Law is exempted for an export cartel prohibits conduct that substantially restrains competition in the rele- among exporters filed with the relevant ministries under the Export and vant market, the JFTC seems to have enforced the Antimonopoly Law Import Transaction Law, if it does not involve unfair trade practices. as though the law prescribes that such cartels are illegal per se, and the JFTC has not accepted the arguments of defendant companies in Industry-specific provisions rebuttal thereof. 9 Are there any industry-specific infringements? Are there any industry-specific defences or exemptions? Joint ventures and strategic alliances 5 To what extent are joint ventures and strategic alliances The Antimonopoly Law apply all of the business and there are no potentially subject to the cartel laws? industry-specific infringements under the Antimonopoly Law. Having said, there are certain guidelines dealing with the cartels formed by The joint ventures on a contract basis and strategic alliances among trade associations, such as those of agricultural cooperatives. competitors are subject to the latter part of article 3 of the Antimonopoly There are systems which allow a cartel to be exempt from the Law and are prohibited if they substantially restraint the competition in Antimonopoly Law due to the applicable business affairs laws (eg, the the relevant market. joint operation of non-life insurance, airlines and maritime transport). The JFTC seems to have ‘per se illegal’ approach to handling inves- However, there are no industry-specific defences. tigations and deciding cartel and bid rigging cases. However, the JFTC has also taken a ‘rule of reason’ approach towards joint ventures formed Government-approved conduct on a contract basis and strategic alliances among competitors, similar to 10 Is there a defence or exemption for state actions, business combinations, according to the JFTC’s report on the prior consul- government-approved activity or regulated conduct? tations that are made public in each fiscal year. This was confirmed in the Report of Study Group on , which was made public as of The systems which permit exemptions from the application of the 10 July 2019 by the Competition Policy Research Center, an organisation Antimonopoly Law based on applicable business affairs laws, in prin- of the JFTC consisting of JFTC officers and academics. While the JFTC has ciple requires approval from the relevant minister and consent from no guidelines for the joint ventures on a contract basis and strategic alli- and notice to the JFTC. Other than those exemptions explicitly provided ances among competitors, the Report provides the basic framework for under the applicable laws, there is no defence due to the approval from reviewing business alliances for research and development, technology the ministries and governmental agencies. There are precedents in use, standardisation, procurement, production, logistics, and sales. which the JFTC has enforced the Antimonopoly Law against companies that colluded and agreed to prices they would file with the relevant APPLICATION OF THE LAW AND JURISDICTIONAL REACH government agencies for their approval in the regulated industries.

Application of the law INVESTIGATIONS 6 Does the law apply to individuals, corporations and other entities? Steps in an investigation 11 What are the typical steps in an investigation? The Law Concerning Prohibition of Private Monopoly and Maintenance of Fair Trade (Law No. 54 of 1947) (the Antimonopoly Law) applies to When the Japan Fair Trade Commission (JFTC) discovers an alleged the conduct of ‘entrepreneurs’, which includes both corporations and violation of the Law Concerning Prohibition of Private Monopoly and individuals. Trade associations are also subject to the prohibition under Maintenance of Fair Trade (Law No. 54 of 1947) (the Antimonopoly Law) the Antimonopoly Law. in the form of an unreasonable restraint of trade by any means (such as through a complaint by a third party, information from an employee of the Extraterritoriality suspected corporation or the application under the leniency programme), 7 Does the regime apply to conduct that takes place outside the the JFTC first conducts a feasibility study for the investigation and then jurisdiction (including indirect sales into the jurisdiction)? If determines whether it will conduct an investigation and, if it determines to so, on what jurisdictional basis? investigate, whether to conduct either an administrative investigation or compulsory measures for criminal offences under the Antimonopoly Law. The Antimonopoly Law contains no provision expressly setting forth the jurisdiction of the Japan Fair Trade Commission (JFTC). However, Investigative powers of the authorities the JFTC considers that it has jurisdiction over conduct that has an 12 What investigative powers do the authorities have? Is court effect on the Japanese market, irrespective of where such activities approval required to invoke these powers? are carried out. Therefore, the JFTC may have jurisdiction over cartel cases involving the Japanese market. The Supreme Court supported Compulsory investigation for criminal offences this conclusion. With regard to the procedures to be followed under the The JFTC may inspect, search and seize materials in accordance with a Antimonopoly Law, the JFTC may use the public service for its inquiries warrant issued by a court judge under the Antimonopoly Law as part of or orders to defendant corporations outside Japan that do not have a the compulsory investigation of criminal offences.

154 Cartel Regulation 2021 © Law Business Research 2020 Nagashima Ohno & Tsunematsu Japan

The JFTC has made public that it will initiate a criminal investiga- INTERNATIONAL COOPERATION tion under the Antimonopoly Law where there is a considerable reason to suspect a malicious and material violation of the Antimonopoly Law, Inter-agency cooperation including cases involving price-fixing, restriction of supply, market divi- 13 Is there cooperation with authorities in other jurisdictions? sion and bid rigging, or where there is an entrepreneur or industry If so, what is the legal basis for, and extent of, such that is repeatedly violating the Antimonopoly Law or an entrepreneur cooperation? that is not complying with a cease-and-desist order and it is difficult to correct such conduct using the JFTC’s administrative measures under Yes. In 1999, Japan and the US signed an Agreement Concerning the Antimonopoly Law. Co-operation on Anticompetitive Activities, providing for coordination When, as the result of the investigation, the JFTC is convinced that and cooperation with respect to antitrust enforcement activities. Under a criminal offence has taken place, it will file a criminal accusation with the Agreement, the competition authorities of each country are mutually the Public Prosecutors’ Office. bound to give notification of enforcement activities that may affect the other’s interests. Administrative investigations by the JFTC Japan also entered into similar agreements with the European The JFTC may, on a compulsory basis, if necessary, during an Commission in 2003 and with Canada in 2005. investigation: Moreover, Japan signed economic partnership agreements • order persons involved in a case or any other relevant person to with various countries, such as Australia, Chile, Malaysia, Mexico, the appear at a designated time and place to testify or to produce docu- Philippines, Singapore and Thailand. mentary evidence; The Japan Fair Trade Commission (JFTC) has also concluded • order experts to appear and give expert testimony; memoranda on cooperation with competition authorities such as China, • order persons to submit account books, documents or other mate- the Philippines, Vietnam, Brazil and Korea. rial, and retain these materials (ie, production orders); and The JFTC may also exchange information with other competition • enter any place of business of persons involved in a case and any authorities to some extent. other necessary place to inspect the conditions of business opera- tion and property, account books, documents and other material Interplay between jurisdictions (ie, dawn raid). 14 Which jurisdictions have significant interplay with your jurisdiction in cross-border cases? If so, how does this affect The JFTC may also conduct investigations on an ex officio basis. the investigation, prosecution and penalising of cartel activity The JFTC usually conducts a dawn raid (a compulsory investiga- in cross-border cases in your jurisdiction? tion) in a cartel or bid rigging case. A dawn raid requires the consent and presence of the manager of a corporation, who may approve the Although the JFTC seems to have made no public announcement with JFTC’s entry onto the premises on behalf of the corporation, with regard regard to the scope and degree of the information actually exchanged to entry onto the premises of the suspected company for the dawn raid. pursuant to the above agreements with other competition authorities The presence of a lawyer, including in-house counsel, is not a legal for particular cases involving cartels, there have been a number of requirement to lawfully or validly conduct the dawn raid. cases in which the competition authorities have apparently coordinated The JFTC removes originals of documents and materials held at their investigations of conduct on a global basis. the offices of companies during a dawn raid, either by an order or a The Antimonopoly Law stipulates that the JFTC may provide infor- request to which the investigated corporation responds on a voluntary mation to foreign competition authorities, excluding cases where ‘proper basis. The Rules on Administrative Investigations provide that persons enforcement’ of the Antimonopoly Law ‘may be disturbed or when inter- who are ordered to submit materials are entitled to make photocopies of ests of the country may be violated’, although it is also stipulated that seized material, unless doing so would impede the investigation. the JFTC must confirm that the confidentiality of information is firmly It is usual for the JFTC to question employees with regard to the secured in foreign countries receiving information from the JFTC to the subject matter of the investigation at the same time as the dawn raids same degree as confidentiality is secured in Japan, and that measures (either at the site or the JFTC’s office) and, in addition, after the comple- must be taken to ensure that such information will not be used in crim- tion of a review of materials and collection of information from other inal procedures overseas. persons, to request such persons to respond to questions. The ques- tioning is usually conducted by the JFTC on a voluntary basis with the CARTEL PROCEEDINGS consent of an individual to be questioned. Further, the JFTC usually issues a report order requesting certain Decisions information, such as the types of product and the sales thereof, and a 15 How is a cartel proceeding adjudicated or determined? production order requesting the production of documents during the process of the administrative investigation, although it sometimes also If the Japan Fair Trade Commission (JFTC), as a result of a compulsory requests that information, documents or both be submitted on a volun- investigation for criminal offences, determines that the alleged conduct tary basis. constitutes a cartel in violation of the Law Concerning Prohibition of The Antimonopoly Law provides the criminal penalties (ie, Private Monopoly and Maintenance of Fair Trade (Law No. 54 of 1947) imprisonment for up to one year or a fine of up to ¥3 million) for any (the Antimonopoly Law) and that criminal sanctions are appropriate, individual that refuses, obstructs or evades inspection as provided in it files a criminal accusation with the Public Prosecutors’ Office, and the Antimonopoly Law. Corporations can also be subject to a fine of up criminal sanctions under the Antimonopoly Law will be imposed on the to ¥3 million. corporation and individuals through the criminal procedures under the applicable laws in the same manner as for other criminal cases. If the JFTC conducts an administrative investigation and issues a cease-and-desist or a payment order for the administrative surcharge, or both, a defendant corporation that has an objection against such www.lexology.com/gtdt 155 © Law Business Research 2020 Japan Nagashima Ohno & Tsunematsu

administrative orders may file a complaint within six months after the judgment rendered by the Tokyo High Court can be referred to the service of the order, with the Tokyo District Court to quash the order. Supreme Court, and can be accepted if certain requirements set forth The Tokyo District Court decisions over complaints to quash JFTC in the Civil Procedure Law are fulfilled. There is a question whether the orders can be appealed to the Tokyo High Court. An appeal against JFTC, having issued an order, has standing to file an action to quash its a judgment rendered by the Tokyo High Court can be referred to the own order. Supreme Court and can be accepted if certain requirements set forth The JFTC or a plaintiff must prove that the alleged facts are ‘highly in the Civil Procedure Law are fulfilled. It is an issue whether the JFTC, probable’ in order to meet the burden of proof in the aforementioned having issued an order, has standing (ie, to file an action to quash its judicial proceedings. own order). In judicial proceedings to quash JFTC orders, the JFTC or a Prior to the amendment to the Antimonopoly Law, which became plaintiff must prove that the alleged facts are ‘highly probable’. effective as of 1 April 2015, complaints to quash JFTC orders were exam- Prior to the amendment to the Antimonopoly Law which became ined through administrative proceedings presided by the administrative effective as of 1 April 2015, complaints to quash JFTC orders were exam- judges appointed and authorised by the chairperson and commis- ined through administrative proceedings presided by the administrative sioners of the JFTC. The decisions rendered through the administrative judges appointed and authorised by the chairperson and commis- proceedings can be appealed to the Tokyo High Court and then to the sioners of the JFTC. The decisions rendered through the administrative Supreme Court. JFTC orders, the relevant advance notice of which was proceedings can be appealed to the Tokyo High Court and then to the rendered prior to 1 April 2015, shall still be subject to the administrative Supreme Court. JFTC orders, the relevant advance notice of which was proceedings of the JFTC, pursuant to the Antimonopoly Law before the rendered prior to 1 April 2015, shall still be subject to the administrative amendment. proceedings of the JFTC pursuant to the Antimonopoly Law before the Complaints to quash JFTC orders are examined by a panel of three amendment. or five court judges. Complaints to quash JFTC orders are examined by a panel of three Under the proceedings before the aforementioned 2015 amend- or five court judges. ment, the Antimonopoly Law adopted the ‘substantial evidence rule’ in Under the proceedings before the aforementioned 2015 amend- which the judicial court is bound by the JFTC’s findings of fact made ment, the Antimonopoly Law adopted the ‘substantial evidence rule’ in through the administrative proceedings, as long as they are supported which the judicial court is bound by the JFTC’s findings of fact made by substantial evidence and a defendant company may not submit through the administrative proceedings, as long as they are supported new evidence to the judicial court proceedings in principle. Since the by substantial evidence and a defendant company may not submit substantial evidence rule was abolished by the amendment in 2015, the new evidence to the judicial court proceedings in principle. Since the judicial court shall not be bound by the JFTC’s findings of fact and a substantial evidence rule was abolished by the amendment in 2015, the defendant company may submit evidence to the judicial court proceed- judicial court shall not be bound by the JFTC’s findings of fact and a ings under the current Antimonopoly Law. defendant company may submit evidence to the judicial court proceed- ings under the current Antimonopoly Law. SANCTIONS

Burden of proof Criminal sanctions 16 Which party has the burden of proof? What is the level of 19 What, if any, criminal sanctions are there for cartel activity? proof required? For an unreasonable restraint of trade, the Law Concerning Prohibition In a criminal case, the criminal procedures for a cartel are same as of Private Monopoly and Maintenance of Fair Trade (Law No. 54 of 1947) those for other crimes, and the burden of proof lies with the public pros- (the Antimonopoly Law) stipulates criminal penalties including a fine of ecutors, who must prove the fact that an alleged cartel constitutes the up to ¥500 million for a corporation, and servitude (labour in a prison) violation of the Antimonopoly Law without reasonable doubt. On the for up to five years, a fine of up to ¥5 million or both for an individual other hand, in appellate judicial proceedings (for challenging JFTC deci- (such as an employee in charge of a cartel). sions), civil proceedings involving claims for injunctions or damages, or Although criminal penalties have been continuously imposed from both, a relatively relaxed standard of proof will apply. In these proceed- the 1990s, ever since the price-fixing case involving the petroleum busi- ings, the party with the burden of proof must prove that the alleged ness in 1984, the number of criminal cases has been small. In February facts are ‘highly probable’. 2016, the JFTC filed a criminal accusation on bid rigging concerning the work to restore roads after the East Japan Earthquake. In March 2018, Circumstantial evidence the Japan Fair Trade Commission (JFTC) filed a criminal accusation on 17 Can an infringement be established by using circumstantial bid rigging among Japanese major construction companies concerning evidence without direct evidence of the actual agreement? the construction of a maglev railway between Tokyo and Nagoya. The JFTC made public its reasons for filing an accusation in the Yes. Indirect or circumstantial evidence is considered to be sufficient to given case, which included the effects of the given cartel on the national prove the cartel. economy and knowledge of the participants to the bid rigging and to the violation of the Antimonopoly Law. To our knowledge, the judicial court, Appeal process regarding individuals, has decided on suspended sentences where deci- 18 What is the appeal process? sions involved imprisonment. We do not have statistics for sentences regarding criminal cases involving cartel cases. After the JFTC conducts an administrative investigation and issues a cease-and-desist or a payment order for the administrative surcharge, or both, the defendant corporation has six months after the order is served to file a complaint with the Tokyo District Court seeking a judg- ment to quash the order. A judgment rendered by the Tokyo District Court can be appealed to the Tokyo High Court. An appeal against a

156 Cartel Regulation 2021 © Law Business Research 2020 Nagashima Ohno & Tsunematsu Japan

Civil and administrative sanctions • requested another corporation to commit such conduct in violation 20 What civil or administrative sanctions are there for cartel of the Antimonopoly Law; or activity? • prevented other corporations from ceasing such conduct.

Administrative sanctions – JFTC enforcement Further, if the corporation that played a leading role in the conduct If a violation of the Antimonopoly Law is supported by evidence, the constituting an unreasonable restraint of trade has repeatedly acted JFTC may order the entrepreneur that committed the violation to cease in violation of the Antimonopoly Law within the past 10 years, the and desist from such acts and to take any other measures necessary to Antimonopoly Law provides that the administrative surcharge rate eliminate such acts. The statutory limitation for the JFTC to issue cease- be doubled. and-desist orders under the current Antimonopoly Law is five years On and after 25 December 2020, if a corporation played a leading after the conduct ceased. Under the amendment to the Antimonopoly role in the conduct constituting an unreasonable restraint of trade by Law (2019 Amendment) effective as of 25 December 2020, the statutory having requested another corporation to obstruct a JFTC investigation limitation will be seven years after the conduct ceased. (eg, conceal or disguise evidence), the administrative surcharge rate will The cease-and-desist order is effective upon the service thereof also be increased by 50 per cent. If such a corporation had committed to its recipient, and such recipient must comply with its terms, even if a conduct constituting an unreasonable restraint of trade in violation of the recipient initiates judicial proceedings for an appeal (administrative the Antimonopoly Law within the past 10 years, the rate will be doubled. proceedings for a case commenced before the 2015 amendment to the The 150 per cent rate will also be applied to: Antimonopoly Law) unless the enforcement of such order is specifically • the parent company that owns 100 per cent of the shares of a suspended by a decision of the court or the JFTC. company that committed the aforementioned conduct within the The JFTC is required to order payment of an administrative past 10 years; or surcharge by entrepreneurs found to have participated in an unreason- • the company that acquired the business from a company that able restraint of trade that directly affects prices or that consequently committed the aforementioned conduct within the past 10 years. affects prices by curtailing the volume of supply (price-fixing or cartels on supply, market share or customers that affect prices). If any such company played a leading role in the conduct constituting The amount of the administrative surcharge is calculated as the an unreasonable restraint of trade, the administrative surcharge rate following percentage of the sales of the products or services that will be doubled. are subject to the cartels for the period of the cartel concerned up The number of defendant companies on which the JFTC has to three years from the date such conduct ceased under the current imposed administrative surcharge orders since 2014 has been: Antimonopoly Law, (ie, before elements of the 2019 Amendment become • 128 in the 2014 fiscal year; effective on 25 December 2020). • 31 in the 2015 fiscal year; The rate of an administrative surcharge under the current • 32 in the 2016 fiscal year; Antimonopoly Law is calculated as follows: • 32 in the 2017 fiscal year; • Large-sized corporations: • 18 in the 2018 fiscal year; and • manufacturers, etc: 10 per cent; • 37 in the 2019 fiscal year. • retailers: 3 per cent; and • wholesalers: 2 per cent. The total amounts of administrative surcharges paid in each year since • Small and medium-sized corporations (SMEs): 2014 were approximately: • manufacturers, etc: 4 per cent; • ¥17 billion in the 2014 fiscal year; • retailers: 1.2 per cent; and • ¥8.5 billion in the 2015 fiscal year; • wholesalers: 1 per cent. • ¥9.1 billion in the 2016 fiscal year; • ¥1.9 billion in the 2017 fiscal year; On and after 25 December 2020, the rate of an administrative surcharge • ¥0.3 billion in the 2018 fiscal year; and under the Antimonopoly Law will be: • ¥69 billion in the 2019 fiscal year. • Large-sized corporations: 10 per cent; and • SMEs: 4 per cent (the scope of SMEs will be limited.) Private actions – private enforcement Although private enforcement of the Antimonopoly Law through civil An administrative surcharge at a rate of 150 per cent of the respective damage suits by private plaintiffs is not as common in Japan as it is rates set out above is imposed on entrepreneurs that have repeated in the United States, a party (such as a competitor or a customer) that conduct in violation of the Antimonopoly Law and that have been subject suffers damage from a cartel is entitled to undertake civil action for to an administrative surcharge payment order within the past 10 years. recovery of damages based on the provisions of strict liability under Note that the decrease of administrative surcharge rate by 20 per cent article 25 of the Antimonopoly Law or on the more general tort law in certain circumstances (such as the withdrawal from the cartel at provisions of the Civil Code. The Antimonopoly Law enables a plaintiff an early stage) under the current Antimonopoly Law will be abolished to claim compensation more easily. That is, if a suit for indemnification under the 2019 Amendment, effective of 25 December 2020. of damages or a counterclaim under the provisions of article 25 (strict An adjustment is made through the system that, if both an liability) has been filed, the court is required, without delay, to request administrative surcharge and criminal fines are imposed on the same the opinion of the JFTC regarding the amount of damages caused by entrepreneur based on the same conduct, the amount of administrative such violations. surcharge shall be calculated by halving the amount of the criminal fine. Note that a legally interested person, such as a plaintiff, may Under the Antimonopoly Law, the administrative surcharge rates review and reproduce the case records of administrative proceedings by are increased by 50 per cent if a corporation played a leading role the JFTC and those of the judicial court proceedings where the validity by having: of JFTC’s orders are challenged by entrepreneurs. Further, the JFTC • planned conduct that constitutes an unreasonable restraint of made a public announcement in 1991 that it will provide plaintiffs with trade in violation of the Antimonopoly Law; access to certain investigation records that the JFTC collects during www.lexology.com/gtdt 157 © Law Business Research 2020 Japan Nagashima Ohno & Tsunematsu

its investigation through a request by the court if a damage suit is filed Parallel proceedings in the court, except for certain information such as trade secrets and 25 Where possible sanctions for cartel activity include criminal privacy information. Through these procedures, documents protected and civil or administrative penalties, can they be pursued by attorney-client privilege in other jurisdictions may be produced in respect of the same conduct? If not, when and how is the during judicial review in Japan. choice of which sanction to pursue made? Civil actions for an injunction under article 24 of the Antimonopoly Law are not available for the unreasonable restraint of trade. When the JFTC finds an alleged violation of the Antimonopoly Law to be an unreasonable restraint of trade by any means (eg, a complaint by a Guidelines for sanction levels third party, information from an employee of the suspected corporation 21 Do fining or sentencing principles or guidelines exist? If yes, or application under the leniency programme, or both), the JFTC first are they binding on the adjudicator? If no, how are penalty conducts a feasibility study for the investigation and then determines levels normally established? What are the main aggravating whether to conduct either an administrative investigation or compul- and mitigating factors that are considered? sory measures for criminal offences under the Antimonopoly Law. Both an administrative surcharge and criminal penalties can be imposed No sentencing guidelines are publicly available for Antimonopoly Law on the same entrepreneur based on the same conduct. If both the violations or for other crimes. The criminal penalties on defendant administrative surcharge and criminal fines are imposed on the same companies (ie, fines) and individuals for violating the Antimonopoly Law, entrepreneur based on the same conduct, the amount of the adminis- (ie, servitude and fines) seem to be based on: trative surcharge shall be calculated by deducting 50 per cent of the • the scale of the conduct (including the size of the business and amount of the criminal fine. market, and the number and levels of participants); The JFTC also made a public announcement that it will not file • the scale of its effects (effects on the business and the market); and a criminal accusation against the corporation, corporate officer or • the duration and maliciousness of the conduct (including whether employee of the ‘first in’ who has been fully cooperative with the JFTC the participant was ringleader or not). during an investigation. Because the JFTC has exclusive rights to file a criminal accusation with regard to the violation of the Antimonopoly Compliance programmes Law and the Public Prosecutors’ Office is highly likely to respect such 22 Are sanctions reduced if the organisation had a compliance decision by the JFTC, in practice, the ‘first-in’ corporation, and officer or programme in place at the time of the infringement? employee thereof, are exempt from the criminal sanctions with regard to the violation of the Antimonopoly Law. Unlike in the United States, there is no guidelines on evaluation of Civil actions may be brought by a plaintiff to the court, regard- compliance programme in Japan and criminal penalties do not seem less of whether an administrative surcharge or a criminal penalty (or to be reduced, even if the organisation had a compliance programme in both) is imposed and whether administrative or criminal investigations place at the time of the violation of the Antimonopoly Law. are ongoing.

Director disqualification PRIVATE RIGHTS OF ACTION 23 Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or Private damage claims officers? 26 Are private damage claims available for direct and indirect purchasers? Do purchasers that acquired the affected Under the Companies Act, individuals involved in cartel activity in viola- product from non-cartel members also have the ability to tion of the Antimonopoly Law are prohibited from serving as a corporate bring claims based on alleged parallel increases in the director if they are sentenced to imprisonment or a more severe penalty prices they paid (‘umbrella purchaser claims’)? What level of and have not completed their sentence, or the sentence still applies damages and cost awards can be recovered? to them (excluding individuals for whom execution of the sentence is suspended). Private damage claims are available, although no triple damages are available in Japan. Namely, a party (eg, a customer) who suffers damage Debarment from a cartel is entitled to undertake civil action for recovery of damages 24 Is debarment from government procurement procedures based on provisions of strict liability under article 25 of the Law Concerning automatic, available as a discretionary sanction, or not Prohibition of Private Monopoly and Maintenance of Fair Trade (Law No. available in response to cartel infringements? 54 of 1947) (the Antimonopoly Law) or on the more general tort law provi- sions of the Civil Code. The Antimonopoly Law enables a plaintiff to claim Each ministry and governmental agency seems to have its own rules compensation more easily. That is, if a suit for indemnification of damages and such rules are not, to our knowledge, publicly available. However, or a counterclaim under the provisions of article 25 (ie, strict liability) has based on our experience, many corporations that have been subject to been filed, the court may, without delay, request the opinion of the Japan investigation by the JFTC on the suspicion of being in a cartel, or that Fair Trade Commission (JFTC) regarding the amount of damages caused the JFTC has rendered orders on, were suspended and such corpora- by such violations. Note that neither compensation for punitive damages tions were restricted from participating in bids presided over by the nor triple damages are allowed. An indirect purchaser may file an action. government agencies. The time period of suspensions seems to differ, The damages to be compensated under the applicable laws require, depending on the government agency imposing it. in civil proceedings, as in any civil tort cases, that the plaintiff bears the burden of proof to demonstrate: • the illegality of the defendant’s conduct; • the amount of damages; • the legally sufficient causal relationship between the damages and the violation; and

158 Cartel Regulation 2021 © Law Business Research 2020 Nagashima Ohno & Tsunematsu Japan

• the negligence or wilfulness of the violator, the conclusion of which The maximum number of leniency applicants is five: up to five applicants depends on whether the plaintiff may prove the causal relationship before a dawn raid, and up to three applicants after the JFTC conducts between the damages and the violation if the plaintiff argues that a dawn raid if the total number of applicants (including those before the indirect sales are within the scope of the damages. dawn raid) is five or less. A joint application for leniency may be made by multiple corporations within the same business group. In a suit for indemnification of damages or a counterclaim under the The first-in corporation is exempt from the administrative provisions of article 25, the Antimonopoly Law does not allow the surcharge. The JFTC made a public announcement that it will not file a defendant to deny its negligence or wilfulness for the violation of the criminal accusation against the first-in corporation, officer or employee Antimonopoly Law. thereof to cooperate. Because the JFTC has the exclusive right to file a criminal accusation with regard to the violation of the Antimonopoly Class actions Law, and the Public Prosecutors’ Office is highly likely to respect such a 27 Are class actions possible? If so, what is the process for such decision by the JFTC, in practice, this means that the first-in corporation, cases? If not, what is the scope for representative or group and officers or employees thereof, are exempted from criminal sanc- actions and what is the process for such cases? tions. The suspension of transactions, which is customarily ordered by the relevant public offices (such as the ministries and local government No class action is available with regard to violations of the Antimonopoly authorities) with which the suspected corporation has business may be Law. Each plaintiff must file its complaint individually. shortened. Having said that, the corporation cannot be discharged of Under the Civil Procedure Law, if rights or obligations, which are civil liability. the subject matter of the lawsuits, are common to two or more persons On and after 25 December 2020, the JFTC will determine the rate or are based on the same factual or statutory cause, these persons may of reduction taking account of the degree of the cooperation by the file a complaint as co-plaintiffs. The same shall apply where rights or applicants, while the current leniency program provide the immunity obligations, which are the subject matter of the lawsuits, are of the same and reduction only in accordance with the orders of application, and in kind and based on the same kind of factual or statutory causes. Also, addition, the limitation of the number of applicants who may enjoy the each plaintiff or defendant may appoint another plaintiff or defendant as benefit of leniency programme is abolished. a representative of each plaintiff/defendant under the ‘appointed party The rate of reduction for leniency applications made before a dawn system’ provided by the Civil Procedure Law. Multiple claimants may raid will be changed to: use these schemes in bringing competition law claims before the civil • first applicant – 100 per cent; court proceedings. • second applicant – 20 per cent; Additionally, qualified consumer organisations are entitled to file • third through 5th applicant – 10 per cent; and an action for an injunction for lawsuits under the Consumer Contract • sixth applicant or thereafter – 5 per cent. Law and injunctions under article 10 of the Law against Unjustifiable Premiums and Misleading Representations. Under the new system However, the second and subsequent applicants may receive a rate of introduced in 2016, consumer organisations qualified by the Japanese reduction of up to 40 per cent, depending on the level of cooperation government may file a lawsuit seeking compensation for damage under with the JFTC investigation. consumer contracts. In such actions, the plaintiffs may assert the If applications are made after a dawn raid, a maximum of three defendants’ violation of the Antimonopoly Law. companies (a maximum of five companies including applicants before a dawn raid) can receive a rate of reduction of 10 per cent. Otherwise, COOPERATING PARTIES the 5 per cent rate will apply. In any event, companies that submit applications after a dawn raid may receive a rate of up to 20 per cent, Immunity depending on the degree of cooperation they provide to the JFTC 28 Is there an immunity programme? If so, what are the basic investigation. elements of the programme? What is the importance of being ‘first in’ to cooperate? Subsequent cooperating parties 29 Is there a formal programme providing partial leniency for An immunity (ie, a leniency) programme is provided under the Law parties that cooperate after an immunity application has been Concerning Prohibition of Private Monopoly and Maintenance of Fair made? If so, what are the basic elements of the programme? Trade (Law No. 54 of 1947) (the Antimonopoly Law). If not, to what extent can subsequent cooperating parties The immunity and the leniency programme under the current expect to receive favourable treatment? Antimonopoly Law is as follows. If an entrepreneur committing an unreasonable restraint of trade A leniency application is required for each good or service that is a voluntarily and independently reports the existence of a cartel and target of the cartels, therefore separate orders of application apply to provides related materials to the Japan Fair Trade Commission (JFTC), each good or service. The amendment to the Antimonopoly Law (the and ceases such violation before the initiation of an investigation, immu- 2019 Amendment) does not change this basic approach. nity from or a reduction in the administrative surcharge payment shall The current Antimonopoly Law sets the maximum number of leni- be applied to such entrepreneurs as follows: ency applicants to five. However, from 25 December 2020, there will be • the first applicant which filed before the initiation of an investiga- no limitation of the number of applicants. tion – total immunity; The current leniency programme only provides immunity and • the second applicant which filed before the initiation of an investi- reductions in accordance with the order of applications received. Under gation – 50 per cent deducted; the 2019 Amendment’s leniency programme, the JFTC will determine • the third through to the fifth applicant which filed before the initia- the rate of reduction by taking the degree of cooperation provided by an tion of an investigation – 30 per cent deducted; and applicant into account. • up to three applicants which filed after the initiation of an investiga- The rates of reduction for leniency applications made before a tion – 30 per cent deducted. dawn raid will also change to the following: www.lexology.com/gtdt 159 © Law Business Research 2020 Japan Nagashima Ohno & Tsunematsu

• first applicant – 100 per cent; Cooperation • second applicant – 20 per cent; 32 What is the nature, level and timing of cooperation that is • third through 5th applicant – 10 per cent; and required or expected from an immunity applicant? Is there any • sixth applicant or thereafter – 5 per cent. difference in the requirements or expectations for subsequent cooperating parties that are seeking partial leniency? The second and subsequent applicants can receive a rate of reduction of up to 40 per cent, depending on the level of cooperation they provide Full cooperation is required for the JFTC to grant leniency (ie, all of the to the JFTC. relevant information must be disclosed and all of the evidence available If applications are made after a dawn raid, a maximum of three to the applicant must be produced for the JFTC). If the JFTC requires companies (a maximum of five companies including applicants before statements, oral statements by individuals are permitted. The level of a dawn raid) can receive a rate of reduction of 10 per cent. Otherwise, cooperation is the same for all applicants (eg, the first and subsequent 5 per cent will apply. In any event, applicants after a dawn raid may applicants). However, if the information or evidence is inconsistent, receive a rate of up to 20 per cent, depending on the degree of coopera- the JFTC will further investigate the case before granting leniency to tion they provide to the JFTC. applicants. A joint application for leniency may be made by multiple corpora- Cooperation with the JFTC regarding its investigation, other than tions within the same business group. those for leniency, has no legal effects. Neither the current Antimonopoly Law nor the 2019 Amendment On and after 25 December 2020, the degree of cooperation with the provides immunity from a criminal accusation to the second and subse- JFTC investigation will be an important factor in the JFTC’s determina- quent applicants. tion regarding reducing the administrative surcharge. The amendments to the Rules on Reporting and Submission of Going in second Materials for Leniency will effective as of 25 December 2020. 30 How is the second cooperating party treated? Is there an ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, Confidentiality how does it operate? 33 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection A leniency programme is available for subsequent parties after the first applicable to subsequent cooperating parties? What to report. information will become public during the proceedings and While there is no ‘amnesty plus’ under the Antimonopoly Law, the when? ‘second in’ and subsequent parties may be exempted from the admin- istrative surcharge, or have it reduced by 100 per cent, if it applies as While the Antimonopoly Law provides the confidential obligation under first-in for leniency for another cartel case (eg, one involving different the Antimonopoly Law for JFTC officials in general, it does not contain products). There is no exemption from criminal and civil liability for the specific provisions with regard to the confidentiality of leniency applicants. second in and subsequent parties. The JFTC made a public announcement that it will disclose the names of the applicants for which administrative surcharges do not Approaching the authorities apply or have been reduced, and the exemption or reduced ratio thereof 31 Are there deadlines for initiating or completing an under the leniency programme if it issues an administrative surcharge application for immunity or partial leniency? Are markers payment order for a case involving the applicant on or after 1 June 2016. available and what are the time limits and conditions Before 31 May 2016, the JFTC would make such information public applicable to them? only when the applicants desired it, so that applicants may request a shorter period of suspension from doing business with the ministries No deadline is provided under the Antimonopoly Law with regard to an and local governments. application (ie, marker) with Form 1. However, the current Antimonopoly The JFTC requests the applicants to keep the application and Law limits the number of applicants who may enjoy the immunity or contact with the JFTC therefor in strict confidentiality, so that the JFTC decrease in the amount of administrative surcharges. The appli- may successfully investigate the case. cant must file as soon as possible before another applicant files an The JFTC allows applications with an oral explanation in certain application. circumstances, while an application must be filed in written form. With regard to the submission of detailed information and admis- However, it can be difficult to go through the entire process of the leni- sion of conduct in violation of the Antimonopoly Law (Form 2) and ency application with no written materials. evidence, the JFTC sets a deadline for submission – usually two weeks. All or at least a substantial part of the information must be submitted to Settlements the JFTC in order for leniency to be granted. On and after 25 December 34 Does the investigating or prosecuting authority have the 2020, it is also important to complete an efficient internal investiga- ability to enter into a plea bargain, settlement, deferred tion, as this may provide more evidence that may be used to secure a prosecution agreement (or non-prosecution agreement) or larger reduction to the administrative surcharge since the JFTC will other binding resolution with a party to resolve liability and determine the rates of reduction by taking the applicant’s cooperation penalty for alleged cartel activity? What, if any, judicial or into account. other oversight applies to such settlements?

In June 2018, the amendment to the Criminal Procedure Law introduced the plea bargaining system for certain types of crimes including viola- tion of the Antimonopoly Law. The system allows for a public prosecutor to enter into a plea bargaining agreement with a suspect or a defendant (an individual or corporate entity) to drop or reduce criminal charges or agree to predetermined punishment if such suspect or defendant

160 Cartel Regulation 2021 © Law Business Research 2020 Nagashima Ohno & Tsunematsu Japan provides certain evidence or testimony in relation to certain types of the JFTC’s fact findings (eg, notebooks and diaries seized during a dawn crimes, including cartels and bid rigging, of other individuals or corpo- raid, or statements signed by the officers and others during interviews) rate entities. Defence lawyers are required to be involved in negotiations before the closure of the process under the Law Concerning Prohibition on the terms of a plea bargaining agreement and the defence lawyers’ of Private Monopoly and Maintenance of Fair Trade (Law No. 54 of 1947) consent to the terms of agreement must be obtained. (the Antimonopoly Law) and applicable rules. Apart from the foregoing, no plea bargains, settlements or other binding resolutions between the JFTC or the Public Prosecutors’ Office Representing employees and defendant companies are permitted. Note that the amendment to 38 May counsel represent employees under investigation in the Antimonopoly Law in 2018 that was included in the Act to Amend addition to the corporation that employs them? When should the Trans-Pacific Partnership Agreement Related Laws introduced the a present or past employee be advised to obtain independent commitment procedure, in which an entrepreneur that received a notice legal advice or representation? from the JFTC regarding alleged violation of the Antimonopoly Law may devise a plan to take necessary measures to cease such an alleged viola- Yes. Unless there is a conflict of interest or differences in the defence tion and file a petition for approval of such plan with the JFTC. If such plan strategy, the lawyer who represents the corporation may represent the is approved, the JFTC will determine to not render a cease-and-desist employee during the process of investigation by the JFTC. However, in and administrative surcharge payment orders against the petitioner. practice, if the individual’s conduct becomes subject to a criminal sanc- However, such a commitment procedure does not apply to cartel conduct. tion, an independent lawyer should represent such individual.

Corporate defendant and employees Multiple corporate defendants 35 When immunity or partial leniency is granted to a corporate 39 May counsel represent multiple corporate defendants? Does defendant, how will its current and former employees be it depend on whether they are affiliated? treated? Yes, legally speaking, unless a conflict of interest exists. However, after The administrative surcharge that can be waived or reduced is imposed the leniency programme was introduced by the 2006 Amendment to the on corporate defendants. While an individual who is ‘first in’ may be Law Concerning Prohibition of Private Monopoly and Maintenance of exempt from criminal accusations, there is no such treatment for later Fair Trade (Law No. 54 of 1947) (the Antimonopoly Law), it seems that applicants. The Antimonopoly Law does not distinguish between former representing multiple suspected companies will raise an ethical issue. employees and current employees. However, the JFTC will usually investigate the current employees of defendant corporations. Payment of penalties and legal costs 40 May a corporation pay the legal penalties imposed on its Dealing with the enforcement agency employees and their legal costs? 36 What are the practical steps for an immunity applicant or subsequent cooperating party in dealing with the Yes. However, the payment of legal fees and expenses to defend such enforcement agency? employee may trigger the liability of the management of the corporation under the shareholders’ derivative suits, unless such payment is for The Leniency Rules make anonymous prior consultation available. the purpose and effect of mitigating the company’s liability. A company A corporation contacting the JFTC for leniency will be informed of the may not bear the criminal penalties on behalf of individual officers or expected order (marker) of the leniency application if it reports to the employees. JFTC in order to apply for the leniency programme. The leniency applicant is required to file the relevant form with the JFTC by facsimile to prevent Taxes the JFTC from receiving more than one written report at the same time. 41 Are fines or other penalties tax-deductible? Are private The products or services that are subject to the violation, and the types damages payments tax-deductible? of conduct in violation of the Antimonopoly Law, must be set forth in the form. The JFTC will inform the applicant of the priority of the first party No. Neither criminal fines nor administrative surcharges are tax-deduct- (marker) and the deadline for submission of evidence and materials. The ible. Income tax is not imposed on the compensation awarded to plaintiff applicant will be required to submit the evidence and materials before due to the conduct in violation of the Antimonopoly Law. the designated deadline using another form. If the JFTC so determines, certain parts of the material may be provided to the JFTC orally. Before International double jeopardy an investigation begins, the JFTC will give priority to the corporation that 42 Do the sanctions imposed on corporations or individuals take submitted its initial report requesting its application the leniency by fax. into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in DEFENDING A CASE other jurisdictions taken into account?

Disclosure To our knowledge, there are no formal rules that are publicly available. 37 What information or evidence is disclosed to a defendant by However, we are under the impression that the JFTC is concentrating on the enforcement authorities? activities, regardless of whether in Japan or outside Japan, that affect the Japanese market or customers. It is not clear whether the JFTC The Japan Fair Trade Commission (JFTC) is required to provide a would enforce the Antimonopoly Law with regard to indirect sales as defendant company with an opportunity to submit its opinion against distinct from direct sales. the JFTC’s allegations before the JFTC issues a cease-and-desist or In private damage suits before the Japanese judicial courts, the an administrative surcharge payment order. During such procedures, amount of damage may be reduced by the court if the defendant proves the defendant company may request the JFTC allow the defendant that the overlapping damage has already been recovered by the same company to review or make photocopies of the evidence that supports claimant through the proceedings in other jurisdictions. www.lexology.com/gtdt 161 © Law Business Research 2020 Japan Nagashima Ohno & Tsunematsu

Getting the fine down 43 What is the optimal way in which to get the fine down?

The JFTC has no discretion to reduce administrative surcharges unless otherwise explicitly provided under the Antimonopoly Law (as the leni- ency programme). Therefore, to reduce the amount of the administrative surcharge, the suspected corporation must cease the cartel conduct as soon as it is found and produce evidence to show that the corporation ceased such conduct before the investigation, and, if possible, file an Eriko Watanabe [email protected] application for the leniency programme as the first in and, on and after 25 December 2020, fully cooperate with the JFTC investigation. Koki Yanagisawa [email protected] UPDATE AND TRENDS JP Tower, 2-7-2, Marunouchi Recent cases Chiyoda-ku 44 What were the key cases, judgments and other developments Tokyo 100-7036 of the past year? Japan Tel: +81 3 6889 7000 There are no remarkable cases regarding cartels or bid rigging. Since Fax: +81 3 6889 8000 the fiscal year 2019, there were only domestic and small and typical www.noandt.com price cartel and bid rigging cases. Most of the major changes in the 2019 Amendment to the Law Concerning Prohibition of Private Monopoly and Maintenance of Fair Trade (Law No. 54 of 1947) (the Antimonopoly Law) will become effective First, with regard to the ‘cartel period’, the statutory limita- on 25 December 2020, which will change the regime of cartel regula- tion will be seven years (increased from five years under the current tions. Major changes contained in the 2019 Amendment apply to the Antimonopoly Law) and the duration of the cartel period will be from the leniency programme, the calculation of administrative sanctions, and most recent activity to 10 years before the JFTC’s dawn raid (increased the amount of the criminal penalty for obstructing a JFTC investigation. from three years under the current Antimonopoly Law). Second, with regard to the changes in ‘sales for the goods or Leniency programme services by the cartel’, the unjust gains owing to the infringements (eg, Under the current Antimonopoly Law, the leniency programme provided the financial gains as a reward for not supplying the goods or services immunity and reduction only in accordance with the order of applica- subject to the cartel, and the sales of subsidiaries belonging to the same tion. On and after 25 December 2020, however, the JFTC will be able group as the defendant company and receiving instructions or informa- to determine the reduction rate, taking account of both the orders of tion from the defendant company) will be added to the ‘sales for the application and the degree of the cooperation by the applicants with the goods or services by the cartel’. Japan Fair Trade Commission (JFTC) investigation. Moreover, a limi- Third, with regard to the rates used for calculating the administra- tation of the number of applicants who may enjoy the benefit of the tive surcharge, a number of changes are to be made, including: leniency programme will also be abolished. • the rates for wholesalers and retailers will be abolished; The rates of reduction for leniency applications made before a • the scope of a small and medium-sized corporation that is subject dawn raid will change to the following: to the decreased rate will be limited; • first applicant – 100 per cent; • the rate for early termination of a cartel will be abolished; and • second applicant – 20 per cent; • the higher rate for a bid leader will be applied to a defendant • third through 5th applicant – 10 per cent; and company obstructing a JFTC investigation (eg, concealing or • sixth applicant or thereafter – 5 per cent. disguising of the evidence by the defendant).

The second and subsequent applicants can receive a rate of reduction In relation to the change in the calculation of administrative surcharges of up to 40 per cent, depending on the level of cooperation they provide under the 2019 Amendment, the relevant government ordinance on the to the JFTC. Antimonopoly Law and the Rules on Administrative Investigations will If applications are made after a dawn raid, a maximum of three be amended effective as of 25 December 2020. companies (a maximum of five companies including applicants before a dawn raid) can receive a rate of reduction of 10 per cent. Otherwise, the Increase to the criminal penalty for obstructing a JFTC investigation 5 per cent rate will apply. In any event, companies that submit applica- An individual obstructing the investigation will be subject to the criminal tions after a dawn raid may receive a rate of up to 20 per cent, depending penalty of ¥3 million (changed from ¥0.2 million) and a criminal penalty on the degree of cooperation they provide to the JFTC. of ¥200 million will be introduced for the company to which such an individual obstructing the investigation belongs. Calculation of administrative surcharge The calculation method (ie, sales for the goods or services by the cartel Protection of communication between licensed lawyers and clients multiplied by the cartel’s active period minus immunity or a reduc- The JFTC introduced a new system where JFTC investigators are tion under the leniency programme) is the same as under the current preventing from immediately accessing confidential communication Antimonopoly Law prior to the 2019 Amendment. However, there are a between licensed lawyers and their clients regarding legal advice on number of changes to the basis of the calculation method that enabling unreasonable restraint of trade (ie, cartels), if certain conditions are the JFTC to substantially increase the amount of the administrative met. Under this system, JFTC officers who are independent from the surcharge to strengthen the enforcement of the Antimonopoly Law. investigation review the lawyer-client communications and determine

162 Cartel Regulation 2021 © Law Business Research 2020 Nagashima Ohno & Tsunematsu Japan whether the investigation’s JFTC officers should be granted access to it. No amendment to the Antimonopoly Law has been made regarding this, but the JFTC will make those guidelines public.

Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

No.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

While the JFTC publicly announced their understanding towards cooperation among competitors in times of crisis after the Tōhoku earth- quake and tsunami in 2011, there have been no changes in the laws, regulations and enforcement of the Antimonopoly Law.

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Nadarashnaraj Sargunaraj and Nurul Syahirah Azman Zaid Ibrahim & Co

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? The Malaysian Aviation Commission Act 2015, which came into force The Competition Act 2010 (the Competition Act), which came into on 1 March 2016, introduces competition law provisions applicable to effect on 1 January 2012, aims to promote economic development by the aviation service sector. In February 2018, the Malaysian Aviation promoting and protecting the process of competition, thereby protecting Commission Act was amended to widen the powers of MAVCOM to the interests of consumers, and to provide for matters connected there- issue guidelines, circulars, directives, practice note or notices as it with. The Competition Act has introduced general competition law for considers appropriate. Following public consultation, MAVCOM issued all markets in Malaysia, except those carved out for sector regula- the following guidelines on competition in the aviation service market: tors under the Communications and Multimedia Act 1998 in relation • Guidelines on Aviation Service Market Definition (published on 19 to network communications and broadcast sectors, and the Energy January 2018); Commission Act 2001 in relation to the energy sector. The Gas Supply • Guidelines on Anticompetitive Agreements (published on 19 (Amendment) Act 2016 also introduced general competition law provi- January 2018); sions to the Gas Supply Act 1993, which are applicable to the Malaysian • Guidelines on Abuse of Dominant Position (published on 19 gas market. There is an exclusion for upstream oil and gas activities. January 2018); In addition, although not expressly carved out from the application • Guidelines on Substantive Assessment of Mergers (published on of the Competition Act, the Postal Services Act 2012, which came into 20 April 2018); force on 1 April 2013, has introduced general competition law, which is • Guidelines on Notification and Application Procedure for an applicable to the postal market. The Malaysian Aviation Commission Act Anticipated Merger or Merger (published on 20 April 2018); 2015, which came into force on 1 March 2016, introduces competition • Guidelines on the Determination of Financial Penalties (published provisions applicable to aviation service. on 22 June 2018); and • Guidelines on Leniency Regime (published on 22 June 2018). Relevant institutions 2 Which authority investigates cartel matters? Is there Following the amendment to the Gas Supply Act 1993, the Energy a separate prosecution authority? Are cartel matters Commission has published Guidelines on Competition for the Gas adjudicated or determined by the enforcement agency, a Market in relation to Market Definition, Anticompetitive Agreements and separate tribunal or the courts? Abuse of a Dominant Position. MyCC has proposed to review and amend the Competition Act The Competition Act is enforced by the Malaysia Competition and the Competition Commission Act 2010 and had carried out a public Commission (MyCC), a body corporate established under the Competition consultation on 16 May 2016 on the proposed amendments, but the Commission Act 2010, comprising representatives from both public and proposed amendments have yet to be tabled in parliament. private sectors. The Competition Act allows any affected enterprise to In its early days of enforcement, MyCC has concentrated its efforts make written or oral representations concerning any proposed decision on competition advocacy and issuing guidelines to shape its interpreta- or finding of infringement by MyCC. MyCC is also empowered to conduct tion of the substantive provisions of the Competition Act and procedural hearings for the purposes of determining whether an infringement has requirements. MyCC had issued the following guidelines following occurred. MyCC’s decision is appealable to the Competition Appeal public consultation: Tribunal (CAT). In certain circumstances, the decision by MyCC or CAT • Guidelines on Market Definition (published on 2 May 2012); may be challenged in court by way of public law relief (judicial review). • Guidelines on Anticompetitive Agreements (published on 2 Competition law in the communications sector and postal market May 2012); are enforced by the Malaysian Communications and Multimedia • Guidelines on Complaints Procedures (published on 2 May 2012); Commission (MCMC), while the Energy Commission oversees competi- • Guidelines on Abuse of Dominant Position (published on 26 tion in the energy and gas sectors. The Malaysian Aviation Commission July 2012); (MAVCOM) oversees competition in the aviation service sector. • Guidelines on Financial Penalties (published on 14 October 2014); • Guidelines on Leniency Regime (published on 14 October 2014); and • Guidelines on Intellectual Property Rights and Competition Law (published 4 May 2019).

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The guidelines are non-exhaustive and do not set a limit on MyCC’s MyCC has indicated that it is only concerned with agreements that powers of investigation and enforcement under the Competition Act. have a significant impact (ie, more than a trivial impact). According to MCMC had issued the following guidelines on mergers in the the Guidelines on Anticompetitive Agreements, MyCC will not generally communications and multimedia sector: consider agreements between competitors whose combined market • Guidelines on Authorisation of Conduct (published on 17 May shares do not exceed 20 per cent of the relevant market to have a 2019); and significant effect on competition, provided that such agreements are not • Guidelines on (published on 17 May 2019). hard-core cartels. Under certain circumstances, an agreement between competitors below the threshold may nonetheless have a significant anti- Substantive law competitive effect, and MyCC will have the power to take enforcement 4 What is the substantive law on cartels in the jurisdiction? action against the parties to such agreement.

Cartel activities are prohibited under Chapter 1 of the Competition Act Joint ventures and strategic alliances (Chapter 1 Prohibition). Section 4(1) of the Competition Act provides: 5 To what extent are joint ventures and strategic alliances potentially subject to the cartel laws? A horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of The Competition Act does not have a merger control regime. Therefore, significantly preventing, restricting or distorting competition in joint ventures and strategic alliances would not require approval from any market for goods or services. MyCC under the Competition Act. That said, joint ventures and strategic alliances would need to be assessed under the Chapter 1 Prohibition on This prohibition is comparatively similar to article 101 of the Treaty on anticompetitive agreements. the Functioning of the European Union. Section 4(2) of the Competition Act deems certain agreements APPLICATION OF THE LAW AND JURISDICTIONAL REACH between competing enterprises as having the object of significantly restricting competition. This means that MyCC need not examine the Application of the law anticompetitive effect of horizontal agreements that: 6 Does the law apply to individuals, corporations and other • fix a purchase or selling price or any other trading conditions; entities? • share markets or sources of supply; • limit or control production, market outlets or market access, tech- The competition law provisions in the Competition Act 2010 (the nical or technological development or investment; or Competition Act) apply to agreements between enterprises. ‘Enterprise’ • constitute bid rigging. is defined as any entity carrying on commercial activities relating to goods or services. This means that the competition law provisions in the MyCC will not only examine the actual common intention of the parties Competition Act do not apply to individuals. but will assess the aims of the agreement (ie, its object) by taking into The provisions in the Competition Act on investigation powers consideration the surrounding economic context. If the agreement is and enforcement however apply to individuals, corporations and highly likely to have a significant anticompetitive effect, MyCC may find other entities. the agreement to have an anticompetitive object. Once an anticompetitive object is shown, MyCC does not need to Extraterritoriality examine the anticompetitive effect of the agreement. However, if the 7 Does the regime apply to conduct that takes place outside the anticompetitive object is not found, the agreement may still infringe the jurisdiction (including indirect sales into the jurisdiction)? If so, Competition Act if there is an anticompetitive effect. Provisions in agree- on what jurisdictional basis? ments that infringe the Competition Act will be unenforceable as they are considered illegal under the Contracts Act 1950. Yes. The Competition Act applies to commercial activity transacted outside The term ‘agreement’ has been widely defined in the Competition Malaysia that has an effect on competition in any market in Malaysia. Act to include any form of contract, arrangement or understanding, whether or not legally enforceable, between enterprises, and includes Export cartels a decision by an association and concerted practices. ‘Concerted prac- 8 Is there an exemption or defence for conduct that only affects tice’ has been defined, following EU case law, to mean any form of customers or other parties outside the jurisdiction? coordination between enterprises that knowingly substitutes practical cooperation between them for the risks of competition. There is no such express exemption or defence under the Competition Broadly, section 5 of the Competition Act permits relief from liability Act. There have also been no reported cases on anticompetitive conduct for a Chapter 1 Prohibition where: that affects only customers or other parties outside Malaysia. • there are significant identifiable technological, efficiency or social The Competition Act applies to any commercial activity within and benefits directly arising from the agreement; outside Malaysia. For commercial activities transacted outside Malaysia, • the benefits could not reasonably have been provided without the the Competition Act would only apply if the conduct has an effect on agreement having the anticompetitive effect; competition in any market in Malaysia. • the detriment to competition is proportionate to the benefits provided; and Industry-specific provisions • the agreement does not eliminate competition in respect of a 9 Are there any industry-specific infringements? Are there any substantial part of the goods or services. industry-specific defences or exemptions?

Although, theoretically, any Chapter 1 Prohibition may be capable of The Competition Act applies to any commercial activity both within and relief from liability under section 5, in practice it is unlikely that hard- outside of Malaysia that has an effect on competition in any market in core cartels will be able to fulfil the conditions in section 5. Malaysia. The definition of ‘commercial activity’ does not include: www.lexology.com/gtdt 165 © Law Business Research 2020 Malaysia Zaid Ibrahim & Co

• any activity, directly or indirectly in the exercise of governmental INVESTIGATIONS authority; • any activity conducted based on the principle of solidarity; or Steps in an investigation • any purchase of goods or services not for the purposes of offering 11 What are the typical steps in an investigation? goods and services as part of economic activity. Trigger Commercial activities regulated by the Communications and Multimedia The Malaysia Competition Commission (MyCC) may conduct any inves- Act 1998, Energy Commission Act 2001, the Petroleum Development Act tigation it thinks expedient where it has reason to suspect that any 1974, the Petroleum Regulations 1974, the Gas Supply Act 1993 and the enterprise has infringed or is infringing any prohibition under the Malaysian Aviation Commission Act 2015 are excluded from the applica- Competition Act. Investigations of cartels are usually triggered by a tion of the Competition Act. complaint or a participant in the cartel seeking a benefit under the leni- Under the Communications and Multimedia Act 1998, licensees ency regime. MyCC encourages aggrieved parties to lodge complaints must not engage in any of the following: in accordance with the Guidelines on Complaint Procedures. If MyCC • conduct that has the purpose of substantially lessening competi- decides not to investigate a complaint, it must inform the complainant of tion in a communications market; the decision and reasons for the decision. • agreements that provide for rate fixing, market sharing or MyCC may, through inter-agency cooperation, work with other boycotts; or competition authorities in enforcement, investigations and other actions, • or linking arrangements. and thus investigate international cartels. Apart from MyCC’s powers to initiate investigations on its own A licensee that has been determined to be in a dominant position can be accord, the Minister has powers to direct MyCC to investigate any directed to cease conduct that has the effect of substantially lessening suspected infringement. competition in a communications market. Where markets are not competitive, MyCC may conduct a market The Competition (Amendment of First Schedule) Order 2016 review to determine if any feature or combination of features of the provides further exclusion on any activities regulated under the market restricts competition. This may include a study into the market Malaysian Aviation Commission Act 2015. structure, conduct of enterprises, supplies and consumers in the The Malaysia Competition Commission (MyCC) may grant individual market. Information gathered from the review can trigger an investiga- or block exemptions where the criteria in section 5 of the Competition tion. By way of illustration, MyCC has conducted a review of the broiler Act have been satisfied. Exemptions are made public. They will be made market in Peninsular Malaysia that focused on the structure of the for a limited time period and may be subjected to conditions. MyCC has domestic broiler market; and the interactions of farmers, wholesalers granted a conditional block exemption to liner shipping agreements in and retailers across the broiler supply chain. respect of voluntary discussion agreements and vessel sharing agree- In December 2017, MyCC carried out a review of the pharmaceu- ments made within Malaysia or have an effect on the liner shipping tical sector in Malaysia that examined industry issues such as: services in Malaysia. • market structure and supply chain issues; • the level of competition among players at different levels of the Government-approved conduct supply chain; 10 Is there a defence or exemption for state actions, • identification of anticompetitive practices; and government-approved activity or regulated conduct? • whether governmental intervention in the industry would be necessary. The Competition Act applies to commercial activities. The definition of ‘commercial activity’ in the Competition Act expressly excludes: MyCC carried out a review of building materials in the construction • any activity, directly or indirectly in the exercise of governmental industry. The specific objectives of the market review include: authority; • determine the market structure, supply chain and profile of • any activity conducted based on the principle of solidarity; or industry players that are involved in the manufacturing and distri- • any purchase of goods or services not for the purposes of offering bution of selected key building materials; goods and services as part of economic activity. • identify the prices of selected key building materials at the manu- facturing and wholesale levels; An enterprise entrusted with the operation of services of general • assess competition in the manufacturing and distribution levels of economic interest or having the character of a revenue-producing selected key building materials; monopoly is excluded from the application of the Competition Act insofar • identify anticompetitive practices among the industry players in as the Chapter 1 Prohibition and Chapter 2 Prohibition (with respect to the manufacturing and distribution levels of selected key building an abuse of dominant position) would obstruct the performance, in law materials; and or in fact, of the particular task assigned to the enterprise. • determine the extent of market distortion and whether government In addition, the following activities are not subject to Chapter 1 intervention is necessary in curbing anticompetitive conduct in the Prohibitions or Chapter 2 Prohibitions: selected key building materials’ market. • an agreement or conduct to the extent to which it is engaged in an order to comply with a legislative requirement; and MyCC also carried out a market review of five selected sub-sectors • collective bargaining activities or collective agreements in respect of the food sector and the services sector (wholesale and retail for of employment terms and conditions, which are negotiated or selected products). concluded between parties that include both employers and employees or organisations established to represent the interests Collection of evidence of employers or employees. MyCC has wide powers of investigation. It may request information by written notice and conduct unannounced raids.

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Notice of proposed decision the evidence to safeguard it. Attempts to break or tamper with the seal If, after the completion of the investigation, MyCC proposes to take may be prosecuted as a criminal offence. enforcement action, it must give written notice of its proposed infringe- Where the MyCC officer has reasonable cause to believe that any ment decision to each enterprise that may be directly affected by the delay in obtaining a warrant would adversely affect the investigation, decision. The notice will: or the evidence will be damaged or destroyed, he or she may enter the • set out the reasons for MyCC’s proposed decision in sufficient premises and exercise the above powers without a warrant. detail to enable such enterprise to have a genuine and sufficient In addition to powers under the Competition Act, MyCC investi- prospect of being able to comment on the proposed decision on an gating officers have the powers of a police officer as provided for under informed basis; the Criminal Procedure Code. • set out the penalties or remedial action; and • present an opportunity for the enterprise to make written or oral INTERNATIONAL COOPERATION representations to MyCC and the deadline for such representations. Inter-agency cooperation MyCC may also conduct hearings to determine whether an enterprise 13 Is there cooperation with authorities in other jurisdictions? has infringed the Chapter 1 Prohibition. If so, what is the legal basis for, and extent of, such cooperation? Decision If MyCC determines that there has been an infringement, it must notify The Competition Commission Act 2010 empowers the Malaysia the persons affected by the decision and require that the infringement Competition Commission (MyCC) to cooperate with any body corporate be ceased immediately. It is empowered, among other things, to impose or government agency for the purpose of performing its functions. We a financial penalty of up to 10 per cent of the enterprise’s worldwide understand that MyCC cooperates with authorities in other jurisdictions. A turnover during the period of the infringement. number of cooperation initiatives that the MyCC has undertaken include: If MyCC finds that there is no infringement, it must give notice of • East Asia Top Level Official’s Meeting on Competition Policy; such decision and specify its reasons. • ASEAN Competition Action Plan 2016-2025; • Malaysia–Japan International Cooperation Agency: Economic Investigative powers of the authorities Partnership Programme – Capacity Building for Competition Law; 12 What investigative powers do the authorities have? Is court • ASEAN–Australia–New Zealand Free Trade Area Economic approval required to invoke these powers? Cooperation Work Programme; and • Malaysia Competition Commission Attachment Programme to the MyCC has wide powers to collect evidence and may direct a person to Australian Competition and Consumer Commission, Australia. give MyCC access to his or her books, records, accounts and computer- ised data. However, these powers are subject to lawyer-client privilege Interplay between jurisdictions and may, at the request of the person disclosing, be protected by confi- 14 Which jurisdictions have significant interplay with your dentiality. As anticompetitive conduct is not a criminal offence, there is jurisdiction in cross-border cases? If so, how does this affect no privilege against self-incrimination. the investigation, prosecution and penalising of cartel activity in cross-border cases in your jurisdiction? Information requests MyCC may, by written notice, require any person (not only those The Competition Act came into effect on 1 January 2012 in Malaysia. To suspected of being in a cartel but also third parties) whom MyCC date, no cross-border cases have been investigated by MyCC. However, believes to be acquainted with the facts and circumstances of the case it is highly likely to take note of investigations by other competition to produce relevant information or documents. MyCC may also require authorities, particularly in closely related markets. the person to provide a written explanation of such information or documents. Where the document is not in the custody of the person, CARTEL PROCEEDINGS he or she must, to the best of his or her knowledge and belief, identify the last person who had custody of the document and state where the Decisions document may be found. A person required to provide information has 15 How is a cartel proceeding adjudicated or determined? the responsibility to ensure that the information is true, accurate and complete, and may be required to provide a declaration that he or she Cartel conduct is investigated and adjudicated by the Malaysia is not aware of any other information that would make the information Competition Commission (MyCC), which has the power to impose fines untrue or misleading. and give directions as it sees fit to bring the infringement to an end.

Dawn raids Burden of proof MyCC may search premises with a warrant issued by a magistrate 16 Which party has the burden of proof? What is the level of where there is reasonable cause to believe that any premises have been proof required? used for infringing the Competition Act or there is relevant evidence of it on such premises. The warrant may authorise the MyCC officer named The burden of proof in establishing that an infringement has occurred on the warrant to enter the premises at any time of day or night, and by lies with MyCC. force if necessary. During such searches, MyCC officers may seize any An enterprise that seeks to rely on any exclusion, exemption or record, book, account, document, computerised data or other evidence other defence (ie, the criteria under section 5 of the Competition Act of infringement. for relief of liability) bears the burden of proving that such exclusion, The powers extend to the search of persons on the premises, and exemption or other defence applies. there is no distinction in these powers regarding business or residential The standard of proof is a balance of probabilities (ie, the same premises. Where it is impractical to seize the evidence, MyCC may seal evidential standard for civil claims). www.lexology.com/gtdt 167 © Law Business Research 2020 Malaysia Zaid Ibrahim & Co

Circumstantial evidence On conviction of any of the above, the penalty for a body corporate is a 17 Can an infringement be established by using circumstantial fine of up to 5 million ringgit, and for subsequent offences up to 10 million evidence without direct evidence of the actual agreement? ringgit. For individuals, the fine is up to 1 million ringgit or imprisonment of up to five years, or both; and for subsequent offences, a fine of up to 2 The rule on admissibility of evidence is relevance. Circumstantial million ringgit and imprisonment of up to five years, or both. evidence can be relied on to prove cartel conduct provided that the To date, there have been no such criminal sanctions imposed under evidence is relevant. the Competition Act and reported in case law.

Appeal process Civil and administrative sanctions 18 What is the appeal process? 20 What civil or administrative sanctions are there for cartel activity? Appeals against MyCC decisions are made to Competition Appeal Tribunal (CAT), which has exclusive jurisdiction to review on appeal any On finding an infringement, MyCC may impose a financial penalty of up findings of infringement or non-infringement made by MyCC. The presi- to 10 per cent of the worldwide turnover of an enterprise over the period dent of CAT is a judge of the High Court, and the CAT comprises between during which the infringement occurred. There is no minimum financial seven and 20 other members appointed by the prime minister on the penalty which MyCC may impose under the Competition Act. recommendation of the minister in charge of domestic trade. The concept of a single economic unit is recognised under the defi- A person aggrieved by MyCC’s decision may appeal to the CAT nition of ‘enterprise’, and this may enlarge the turnover of the relevant by filing a notice of appeal to the CAT within 30 days of the decision. enterprise to include parents with decisive influence, and subsidiaries This means that the right of appeal is not limited only to the enterprise that do not have autonomy to determine their actions on the market. made subject to MyCC’s decision, but extends to third parties who are MyCC must require that the infringement be ceased immediately, aggrieved or whose interest are affected by that decision (which may and may specify steps to be taken to achieve this or give any other include third-party consumers). This notice of appeal shall state in appropriate direction. summary form the substance of the decision of MyCC being appealed The financial penalty is potentially higher than that in other jurisdic- against, and an address for service of notices related to the appeal. tions where the fine is limited to a specified number of years, whereas in CAT may confirm or set aside the decision being appealed against, Malaysia it may be for the entire duration of an infringement. However, or any part of it, and may: the magnitude of this may not be felt for a while, as it applies only from • remit the matter to MyCC; 1 January 2012, the date on which the Competition Act came into force. • impose or revoke, or vary the amount of, a financial penalty; and MyCC may bring proceedings before the High Court against any • exercise MyCC’s powers to make decisions, give directions or take person who fails to comply with its directions. such other appropriate actions. To date, the financial penalties that have been proposed or imposed by MyCC ranged from 20,000 to 174 million ringgit. In September 2020, The CAT’s decision is decided on a majority of its members and is final MyCC published its final decision to an aggregate penalty of 173,655,300 and binding on the parties to the appeal. Nonetheless, the CAT’s deci- million ringgit against the General Insurance Association of Malaysia sion may be subjected to judicial review by the High Court. MyCC had (PIAM) and several of its members in relation to an alleged anticom- in 2014 found both Malaysian Airline System Bhd and AirAsia Bhd liable petitive agreement to fix trade discount rates for parts of certain vehicle for market sharing where each party was fined 10 million ringgit for makes, and labour hourly rates for workshops under the PIAM Approved entering into a collaboration agreement that saw the two airlines sharing Repairers Scheme. markets in the air transport services sector within Malaysia. MyCC’s Although not all infringing enterprises have been fined with finan- final decision was subsequently overturned on appeal by the CAT, and cial penalties, it appears from recent trends that MyCC is taking a the fines imposed on the airlines were set aside. MyCC subsequently stricter stance for deterrence. filed for an application to the High Court for judicial review against the The first cartel case in early 2012, investigated by MyCC, involved CAT’s decision. The High Court allowed MyCC’s application for judicial the Cameron Highlands Floriculturist Association (CHFA). In this case, review and upheld the decision made by MyCC in the first instance. MyCC found CHFA to be liable for fixing the price of flowers sold to distributors and wholesalers in Malaysia. MyCC, which had initially SANCTIONS proposed a financial penalty of 20,000 ringgit on CHFA in its proposed decision, removed that sanction in its final decision stating that CHFA Criminal sanctions had followed up with consultations with MyCC soon after receiving the 19 What, if any, criminal sanctions are there for cartel activity? proposed decision and exhibited exemplary cooperation in complying with the Competition Act. The final decision from MyCC required CHFA to: Currently, cartel conduct under the Competition Act 2010 (the • cease and desist the infringing act of fixing prices of flowers; Competition Act) is not a criminal offence. However, obstructing a • provide an undertaking that its members shall refrain from any Malaysia Competition Commission (MyCC) investigation may lead to anticompetitive practices in the relevant market; and criminal sanctions. Among other things, it is an offence to: • issue a statement on the above-mentioned remedial actions in the • refuse to give access to documents when directed by MyCC; mainstream newspapers. • provide false or misleading information, evidence or documents; • destroy, conceal, mutilate or alter any evidence with the intent to In January 2015, MyCC imposed fines totalling 252,250 ringgit on 24 defraud MyCC or obstruct MyCC’s investigation; ice manufacturers for allegedly fixing the selling prices of edible tube • tamper with or break a seal affixed to protect the integrity of evidence; ice and block ice. The proposed financial penalties for each manufac- • tip-off others in a manner that is likely to prejudice any investiga- turer ranged from 1,080 to 106,000 ringgit. Before issuing the proposed tion or proposed investigation; or decision, MyCC had issued interim measures to the ice manufacturers • threaten reprisals on persons who file complaints of infringements seeking to prevent them from acting in accordance with their plan or cooperate with MyCC in its investigations. (which was advertised through local newspapers in December 2013) to

168 Cartel Regulation 2021 © Law Business Research 2020 Zaid Ibrahim & Co Malaysia collectively increase the price of edible tube ice by 0.50 ringgit per bag Guidelines for sanction levels and 2.50 ringgit per block from 1 January 2014. In determining the level 21 Do fining or sentencing principles or guidelines exist? If yes, of financial penalty, MyCC stated that it took into account the serious- are they binding on the adjudicator? If no, how are penalty ness of the infringement, duration of the infringement and mitigating levels normally established? What are the main aggravating factors, such as being cooperative during the investigation. and mitigating factors that are considered? In another price-fixing case involving the Pan-Malaysia Lorry Owners Association (PMLOA), MyCC did not propose financial penal- Yes. MyCC issued its Guidelines on Financial Penalties, which explain ties but issued proposed interim measures to PMLOA and accepted an how MyCC determines the appropriate fine and the factors that it may undertaking from PMLOA and related lorry enterprises that they will not take into account in doing so. In imposing financial penalties, MyCC aims engage in any future anticompetitive conduct such as price-fixing and to reflect the seriousness of the infringement and deter future anticom- shall cease and desist from increasing the transportation charges of up petitive practices. In determining the amount of any financial penalty to 15 per cent after MyCC stated that this action constitutes price-fixing. in a specific case, MyCC may take into account aggravating factors and MyCC had also in 2014 found both Malaysian Airline System Bhd mitigating factors. and AirAsia Bhd liable for market sharing where each party was fined 10 The aggravating factors include: million ringgit for entering into a collaboration agreement that saw the • the role of the enterprise as an instigator or leader or having two airlines sharing markets in the air transport services sector within engaged in coercive behaviour with others; Malaysia. The penalty is less than the maximum fine of 10 per cent of • obstruction of or lack of cooperation in the investigation; both airlines’ respective worldwide turnovers between January and • the enterprise has a record of committing similar infringements or April 2012 (infringement period) as MyCC took into consideration the full other infringements under the Competition Act (recidivism); cooperation of both parties in providing requested data and information. • continuance of the infringement after the start of investigation; and MyCC had also considered the voluntary action taken by both parties to • involvement of board members or senior management in the remove reference to routes and market focus stated in the collabora- infringement. tion agreement as well as the fact that both parties have implemented competition compliance programmes. MyCC’s final decision, however, Meanwhile, the following non-exhaustive list of mitigating factors may was subsequently overturned on appeal by the CAT on 4 February 2016 also be taken into consideration: and the fines imposed on the airlines were set aside. MyCC filed for an • low degree of fault; application for judicial review to the High Court against the CAT’s deci- • relatively minor role in the infringement especially if involvement sion. The High Court allowed MyCC’s application for judicial review and is secured by threats or coercion; upheld the decision of MyCC at the first instance. • cooperation by the enterprise in the investigation; In March 2015, MyCC imposed fines totalling 247,730 ringgit on • existence of a corporate compliance programme that is appro- 14 members of the Sibu Confectionery and Bakery Association for priate having regard to the nature and size of the business of the its involvement in price-fixing in December 2013, by increasing the enterprise; and prices of products of confectionery and bakery products between 10 • any compensation made to victims of the infringements. and 15 per cent in Sibu, Sarawak. In determining the level of financial penalty, MyCC took into account, among other things, the duration of the Compliance programmes infringement, seriousness of the infringement and relevant turnover of 22 Are sanctions reduced if the organisation had a compliance the enterprises. programme in place at the time of the infringement? In June 2016, MyCC issued its decision against an information technology service provider to the shipping and logistics industry and Yes. In determining the amount of financial penalty to impose, MyCC has four container depot operators for price-fixing. The final decision states indicated in its Guidelines on Financial Penalties that it will take into that Containerchain (M) Sdn Bhd (Containerchain), the information account mitigating factors. Mitigating factors include the existence of a technology service provider, had engaged in concerted practices with compliance programme that is appropriate having regard to the nature the container depot operators resulting in the operators increasing the and size of the business of the enterprise. depot gate charges from 5 ringgit to 25 ringgit. MyCC also alleged that the concerted practice resulted in the container depot operators offering Director disqualification a rebate of 5 ringgit to hauliers on the agreed depot gate charges. 23 Are individuals involved in cartel activity subject to orders The financial penalties imposed on the operators and the informa- prohibiting them from serving as corporate directors or tion technology service provider ranged from 52,980 ringgit to 163,623 officers? ringgit, with a combined total penalty of 645,774 ringgit. MyCC is expected to take a stricter stance when enforcing hard- We are not aware of any published orders being issued by any regula- core cartel cases and we expect higher fines to be used as part of tory authority or court to disqualify a director as a result of any cartel MyCC’s efforts to combat cartels. In March 2018, it was reported in activities. the media that MyCC was investigating 16 cases across six industries, including government procurement, pharmaceutical, information tech- Debarment nology, financial products and logistics. 24 Is debarment from government procurement procedures In March 2019, it was reported in the media that MyCC issued a automatic, available as a discretionary sanction, or not proposed decision against eight companies proposing fines totalling available in response to cartel infringements? 1.94 million ringgit in penalties for bid rigging through tenders offered by the National Academy of Arts, Culture and Heritage. No.

www.lexology.com/gtdt 169 © Law Business Research 2020 Malaysia Zaid Ibrahim & Co

Parallel proceedings provide for the reduction of up to a maximum of 100 per cent of any 25 Where possible sanctions for cartel activity include criminal penalties, which would otherwise have been imposed (ie, full immunity). and civil or administrative penalties, can they be pursued The reductions would depend on whether the enterprise was the first in respect of the same conduct? If not, when and how is the person to bring the suspected infringement to the attention of MyCC, choice of which sanction to pursue made? the stage in the investigation at which it admits its involvement in the infringement as well as information or another form of cooperation to be The competition law provisions in the Competition Act are not punish- provided and the information already in possession of MyCC. able as criminal offences. The leniency regime is only available in cases where the enterprise has: PRIVATE RIGHTS OF ACTION • admitted its involvement in an infringement of section 4(2) of the Competition Act; and Private damage claims • provided information or another form of cooperation to MyCC that 26 Are private damage claims available for direct and indirect significantly assisted, or is likely to significantly assist, in the iden- purchasers? Do purchasers that acquired the affected tification or investigation of any finding of an infringement against product from non-cartel members also have the ability to any other enterprises. bring claims based on alleged parallel increases in the prices they paid (‘umbrella purchaser claims’)? What level of Based on MyCC’s Guidelines on Leniency, what would be considered damages and cost awards can be recovered? as ‘significant assistance’ will be determined by MyCC on the specific circumstance of the case under consideration. Any person who suffers loss or damage directly as a result of any anti- Note that leniency would not be able to protect a successful appli- competitive conduct under the Competition Act 2010 (the Competition cant from other legal consequences such as private actions brought by Act) may bring a private action against the infringing enterprises in the an aggrieved person who has suffered loss or damage directly caused civil courts regardless of whether such person dealt directly or indirectly by the infringement. with the enterprise. As such, indirect purchaser claims are actionable. Such civil action may be initiated even if the Malaysia Competition Subsequent cooperating parties Commission (MyCC) has not conducted or concluded an investiga- 29 Is there a formal programme providing partial leniency for tion into the alleged infringement. However, in practice, the evidential parties that cooperate after an immunity application has been burden on private parties makes this unlikely unless MyCC’s investiga- made? If so, what are the basic elements of the programme? tion and adjudication process is slow. If not, to what extent can subsequent cooperating parties expect to receive favourable treatment? Class actions 27 Are class actions possible? If so, what is the process for such There is no separate programme, and any subsequent leniency applicant cases? If not, what is the scope for representative or group may still benefit from the leniency regime. The percentage of reduction actions and what is the process for such cases? would depend largely on the stage in the investigation at which it admits its involvement in the infringement, and the value of the incremental Class actions are not possible in Malaysia. The only form of group litiga- information or other cooperation it is able to provide. Such percentage tion in Malaysia is representative actions. of reduction is expected to commensurate with the additional informa- Where numerous persons have the same interest in any proceed- tion and assistance such enterprise is able to provide MyCC. ings, the proceedings can be commenced and (unless the court orders otherwise) continued by any one or more claimants, otherwise known Going in second as ‘representative proceedings’. The representative must satisfy the 30 How is the second cooperating party treated? Is there an following criteria to initiate a representative action: ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, • common interest; how does it operate? • common grievance; and • the relief sought must be beneficial to all. The leniency regime is designed to encourage cartelists to be the ‘first in’ to supply as much information as possible in order to expedite MyCC’s A member of a class who is not represented by the representative may investigation. By being the second as opposed to the third or a subse- apply to the court to be added as a co-plaintiff. quent cooperating party, the second cooperating party is more likely to receive a greater reduction if the application is made during the early COOPERATING PARTIES stages of an investigation. Further, subsequent applications would be assessed in light of information that MyCC has in its possession including Immunity that received from leniency applicants who have received leniency. 28 Is there an immunity programme? If so, what are the basic Conceptually, the Malaysian leniency regime contains elements of elements of the programme? What is the importance of being ‘amnesty plus’ option comparatively similar to that applied in the EU. ‘first in’ to cooperate? However, the scope and operational mechanism may differ.

Yes. This immunity, under section 41 of the Competition Act 2010 Approaching the authorities (the Competition Act), is only available for a breach of the Chapter 1 31 Are there deadlines for initiating or completing an application Prohibition and particularly an admission of an infringement under for immunity or partial leniency? Are markers available and section 4(2) which deems certain agreements between competing what are the time limits and conditions applicable to them? enterprises as having the object of significantly restricting competition. The Competition Act empowers the Malaysia Competition Yes. Based on MyCC’s Guidelines on Leniency Regime, an applicant has Commission (MyCC) to grant differing percentages of reductions and 30 days to complete its leniency application from the date he receives

170 Cartel Regulation 2021 © Law Business Research 2020 Zaid Ibrahim & Co Malaysia a ‘marker’ which gives the applicant priority in receiving leniency while undertaking will be made public. MyCC may apply to the High Court for his application is being prepared. Failure to do so will result in the appli- an order that the enterprise complies with the terms of the undertaking cant losing its priority position. accepted by MyCC. A breach of the High Court order may be punished Parties would in practice consider: as a contempt of court. • whether MyCC is already investigating the cartel that may affect its Offering a suitable undertaking is particularly useful to avoid position in the leniency queue; a finding of infringement, which may potentially trigger follow-on • the possibility that another cartelist has blown the whistle; civil actions. • the competition law implications in other jurisdictions, as MyCC is able to disclose the information to competition authorities in other Corporate defendant and employees jurisdictions, some of which may have criminal sanctions; 35 When immunity or partial leniency is granted to a corporate • whether concurrent leniency applications should be made in defendant, how will its current and former employees be multiple jurisdictions; and treated? • whether the enterprise can offer an undertaking on acceptable terms to MyCC. There is no effect, as there is no liability for infringement of the Chapter 1 Prohibition on employees. Nor are there criminal sanctions on indi- The possibility of liability from follow-on actions should also be consid- viduals involved in a cartel. ered. MyCC cannot provide immunity from third-party damages actions. Note, however, that individuals can have personal liability for offences under the Competition Act, such as: Cooperation • refuse to give access to documents when directed by MyCC; 32 What is the nature, level and timing of cooperation that • provide false or misleading information, evidence or documents; is required or expected from an immunity applicant? Is • destroy, conceal, mutilate or alter any evidence with the intent to there any difference in the requirements or expectations defraud MyCC or obstruct MyCC’s investigation; for subsequent cooperating parties that are seeking partial • tamper with or break a seal affixed to protect the integrity leniency? of evidence; • tip off others in a manner that is likely to prejudice any investiga- Only an enterprise that admits its involvement in any prohibited behav- tion or proposed investigation; or iour and provides information to MyCC that significantly assists in the • threaten reprisals on persons who file complaints of infringements identification or investigation of any prohibited behaviour by other or cooperate with MyCC in its investigations. enterprises may benefit from leniency. Different percentages of reduc- tions of fines are available under the leniency regime, depending on Dealing with the enforcement agency whether the enterprise was the first person to bring the suspected 36 What are the practical steps for an immunity applicant infringement to the attention of MyCC and the stage of the investigation or subsequent cooperating party in dealing with the at which the enterprise provides information or admits involvement in enforcement agency? the infringement. It would be important for a leniency applicant to come forward at an early Confidentiality stage in the investigation as his or her application would be assessed 33 What confidentiality protection is afforded to the immunity in light of information that MyCC has in its possession including that applicant? Is the same level of confidentiality protection received from leniency applicants who have received leniency. applicable to subsequent cooperating parties? What information will become public during the proceedings and DEFENDING A CASE when? Disclosure Generally, confidentiality including the identity of the applicant will be 37 What information or evidence is disclosed to a defendant by maintained as the Competition Act prohibits the unauthorised disclo- the enforcement authorities? sure of confidential information. However, MyCC is authorised to make disclosures to other competition authorities in conjunction with their There is no automatic right under the Competition Act 2010 (the investigations and where necessary for the performance of MyCC’s Competition Act) for disclosure of information or evidence by the functions. Malaysia Competition Commission (MyCC). However, MyCC may allow reasonable access to its investigation file, in the interest of procedural Settlements fairness and to ensure that the enterprise can properly defend itself 34 Does the investigating or prosecuting authority have the against the allegations raised in a proposed decision and to enable the ability to enter into a plea bargain, settlement, deferred effective exercise of the rights of defence. Certain documents may not prosecution agreement (or non-prosecution agreement) or be disclosed on the grounds of confidentiality. other binding resolution with a party to resolve liability and penalty for alleged cartel activity? What, if any, judicial or Representing employees other oversight applies to such settlements? 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should As infringement of the Chapter 1 Prohibition is not a criminal offence, a present or past employee be advised to obtain independent there is no applicable plea bargain concept. legal advice or representation? However, MyCC may accept an undertaking from an enterprise to take remedial action subject to conditions that MyCC may impose. Where The Competition Act does not impose personal liability on employees this is the case, MyCC shall close the investigation without any finding involved in a cartel. Typically, therefore, representation is at the enter- of infringement, and it cannot impose a penalty on the enterprise. The prise level. A present or past employee would be advised to obtain www.lexology.com/gtdt 171 © Law Business Research 2020 Malaysia Zaid Ibrahim & Co

independent legal advice where the employee is suspected to have committed a criminal offence, for example, where he or she has given bribes to in order to influence the bidding of a project.

Multiple corporate defendants 39 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated?

Counsel may represent multiple corporate defendants, subject to strict Nadarashnaraj Sargunaraj [email protected] adherence to professional and ethical responsibilities. Conflicts of interest are likely to arise between the alleged parties to a cartel. Nurul Syahirah Azman [email protected] Payment of penalties and legal costs

40 May a corporation pay the legal penalties imposed on its Level 19 Menara Milenium employees and their legal costs? Jalan Damanlela Pusat Bandar Damansara Not applicable. The Competition Act does not impose personal liability 50490 Kuala Lumpur for employees involved in a cartel. Malaysia Tel: +60 3 2087 9999 Taxes Fax: +60 3 2094 4666/4888 41 Are fines or other penalties tax-deductible? Are private www.zicolaw.com damages payments tax-deductible?

No. not disclosed the amount of a proposed fine for proposed infringement International double jeopardy decisions. Only when MyCC receives representation from the relevant 42 Do the sanctions imposed on corporations or individuals take parties will it determine the final decision and the fine imposed, if any. into account any penalties imposed in other jurisdictions? In private damage claims, is overlapping liability for damages in Regime reviews and modifications other jurisdictions taken into account? 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency No. programmes or other elements of the regime?

Getting the fine down MyCC has indicated that merger control provisions may be introduced 43 What is the optimal way in which to get the fine down? under the Competition Act 2010 (the Competition Act).

Based on recent cases, it is also particularly helpful for the enterprise Coronavirus to cooperate with MyCC in the investigation. MyCC’s Guidelines on 46 What emergency legislation, relief programmes, enforcement Financial Penalties state that MyCC may take into account the existence policies and other initiatives related to competitor conduct of a compliance programme as a mitigating factor to reduce any poten- have been implemented by the government or enforcement tial fines to be imposed. authorities to address the pandemic? What best practices are It is not clear whether compliance initiatives that were undertaken advisable for clients? post-investigation would be considered by MyCC as a mitigating factor. Given that competition law is relatively new in Malaysia, MyCC is There are no temporary exemptions from compliance with the keen to encourage compliance and is likely to take into account genuine Competition Act due to the covid-19 pandemic. MyCC has also not issued efforts to comply with the Competition Act. any statement that it will relax enforcement in light of the pandemic. The Competition Act continues to apply to businesses. UPDATE AND TRENDS

Recent cases 44 What were the key cases, judgments and other developments of the past year?

In January 2020, the Malaysia Competition Commission (MyCC) issued a proposed decision against seven warehouse operators for infringing the Chapter 1 Prohibtion in relation to price fixing of rates for Long Length Handling Surcharges and Heavy Lift Handling Surcharge for all import and export cargoes. In addition, MyCC also found, through an online platform conversation, that most of the warehouse operators had implemented the price fixing rates upon their respective customers. This is the first proposed decision of MyCC that it has not disclosed the amount of the proposed fine as the final decision has yet to be made. This is consistent with MyCC’s new policy beginning 2020 that it will

172 Cartel Regulation 2021 © Law Business Research 2020 Mexico

Rafael Valdés Abascal and Agustín Aguilar López Valdes Abascal Abogados

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? In October 2019, the Regulatory Provisions for the qualification of The legal basis of competition policy and law enforcement is provided information derived from legal counsel provided to economic agents by article 28 of the Constitution, which prohibits monopolies and monop- came into force. This regulates the procedure that the Mexican Federal olistic practices. Competition Commission (COFECE) must follow when, for example, the The Federal Law of Economic Competition (LFCE) provides a COFECE seizes documentation that contains legal advice protected by detailed regulation on, among other things, merger control, relative the attorney-client privilege during a dawn raid. monopolistic practices (abuse of dominance practices and vertical Also, in March 2020, the Regulatory Provisions for the Immunity restraints) and absolute monopolistic practices (cartel conduct) with the and Sanction Reduction Program foreseen in article 103 of the Federal aim of promoting competition and preventing anticompetitive conduct. Economic Competition Law came into force, which establishes, among Cartels are covered by article 53 of the LFCE, which prohibits other things, the procedure that economic agents must follow to enter absolute monopolistic practices. Criminal responsibility for a cartel is into the Leniency Programme. established in article 254-bis of the Federal Criminal Code and is pros- ecuted according to the National Code of Criminal Proceedings, while Substantive law civil responsibility is regulated by the Federal Civil Code, the Federal 4 What is the substantive law on cartels in the jurisdiction? Code of Civil Proceedings and article 134 of the LFCE. Article 53 of the LFCE prohibits absolute monopolistic practices Relevant institutions (cartels), which are defined as any contract, arrangement or combina- 2 Which authority investigates cartel matters? Is there tion between competitors, whenever its purpose or effect is one of the a separate prosecution authority? Are cartel matters following: adjudicated or determined by the enforcement agency, a • to fix, raise, coordinate or manipulate the purchase or sale price of separate tribunal or the courts? goods or services (price-fixing); • to limit the production, processing, distribution, marketing or The Federal Economic Competition Commission (COFECE) enforces purchasing of goods, or to limit services, including their frequency the LFCE and is in charge of preventing, investigating and sanctioning (restriction of output); administrative infringements derived from cartel conduct. COFECE has • to divide, distribute, allocate or impose specific portions or jurisdiction over all industries, with the exception of the broadcasting and segments of a current or potential market of goods or services by telecommunications industries, where the Federal Telecommunications means of clients, suppliers, time spans or certain territories (allo- Institute (IFT) enforces the LFCE. cation of markets); COFECE and IFT decisions may be challenged before competi- • to establish, arrange or coordinate bids or abstentions in tenders, tion, broadcasting and telecommunications specialised federal courts, contests, auctions or purchase calls (bid rigging); or through an amparo proceeding. • to exchange information having as a purpose or an effect any of the COFECE and IFT may bring criminal charges before the public above-mentioned conducts. prosecutor. Criminal prosecution and adjudication correspond to the Mexican Attorney-General and the federal criminal courts, respectively. According to the LFCE, cartels are per se illegal. Thus, the authority does Federal specialised courts in competition, broadcasting and not need to assess market power or any adverse effect over the market. telecommunications have jurisdiction over individuals’ and collective In other words, the restriction of competition is presumed whenever damage claims. the above conduct takes place, without the opportunity to demonstrate Except as mentioned otherwise, any references made in this efficiencies. chapter to COFECE will also apply to the IFT in the context of the broad- According to COFECE’s Regulatory Provisions, the following will be casting and telecommunications industries. considered cartel conduct indicia and, as such, may be used for initiating a cartel conduct investigation: • the invitation or recommendation addressed to one or more competitors to coordinate prices, output, or production, distribu- tion and commercialisation terms and conditions, or to exchange information with the same purpose or effect; www.lexology.com/gtdt 173 © Law Business Research 2020 Mexico Valdes Abascal Abogados

• a situation where the price offered in Mexico by two or more • be integrated by persons that: competitors regarding internationally interchangeable goods or • do not work for the commercial areas of the economic agents services is considerably higher or lower than the international and to avoid contact with such areas; and reference price, as well as a situation where the tendency of its • have signed confidentiality agreements obliging them to evolution in a specific time span is considerably distinct to the protect and maintain the confidentiality of the information; tendency of international prices in the same period, except when • if possible, delegate the collection, management and use of such difference derives from the application of tax laws, or from the strategic information to an independent third party that will transport or distribution costs; evaluate the information in its most disaggregated level and then • the instructions, recommendations or business standards aggregate it for analysis by the concentration; and adopted by chambers of commerce or professional associations to • maintain real-time records of all information exchanges and coordinate prices, output, or production, distribution and commer- contact between the parties (such records must be sequential and cialisation terms and conditions of a certain product or service, or detailed to the extent that it is possible to rebuild in a reliable way to exchange information with the same purpose or effect; the source of information, the moment in which the information • a situation where two or more competitors establish the same was sent and received by the parties, and the use that was given maximum or minimum prices for certain good or service; to the information). • a situation where competitors adhere to the prices issued by a competitor, certain chambers of commerce or associations; and Whenever it becomes necessary to impose restrictions regarding the • regarding broadcasting and telecommunications industries, a situ- use and disposal of certain assets or to increase liabilities, in the phase ation where two or more competitors refrain from participating that goes from the execution of the purchase agreement to the closing from bidding or coordinate their bids in certain geographic areas. of the transaction: • restrictions must be minimal to protect the value of the assets that With respect to information exchange, the Guidelines for Information will be transferred; Exchange among Competitors establish some criteria under which such • parties must not coordinate prices, output, allocate markets or conduct will be assessed. First, the Guidelines point out the relevance rig bids before closing, nor impose future decisions to another of the nature and characteristics of the information to be exchanged: party; and strategic, detailed and recent information, exchanged in a frequent • parties must inform the individuals involved in the concentration of basis, is more likely to restrain competition and, as such, the exchange the legal framework regarding merger control and cartel conduct. of the aforesaid information is more likely to be investigated by COFECE. Likewise, the Guidelines explain that the market structure is also a Joint ventures and strategic alliances key element to take into consideration: concentrated and more static 5 To what extent are joint ventures and strategic alliances markets, with symmetric participants and homogeneous products, are potentially subject to the cartel laws? more propitious to collusion and, as such, strategic information exchange in those markets is riskier and more likely to be investigated by COFECE. The LFCE does not provide an exception regarding its applicability to Also, the Guidelines for Information Exchange among Competitors joint ventures and strategic alliances. However, according to the latest include the following recommendations regarding information exchange Guidelines for Notification of Concentrations issued by COFECE, collabo- in a due diligence process in the context of a horizontal concentration. ration agreements (such as joint ventures and strategic alliances) may • Each economic agent must identify strategic information – there- be reviewed under the merger control procedure whenever the agree- fore, all non-public information that would not be shared normally ments meet the characteristics of a concentration. This implies that with third parties regarding prices, discounts, sales and purchase an agreement could be analysed under a rule-of-reason basis and it terms and conditions, clients and suppliers, must be identified. represents an opportunity for the parties to obtain certainty regarding • The use of strategic information must be limited to indispensable the legality of a collaboration agreement if they submit it to scrutiny by matters and as long as it is strictly needed for an adequate evalu- COFECE before its closing. ation of the transaction. Such an exchange is indispensable when the information is reasonably related to the parties’ understanding APPLICATION OF THE LAW AND JURISDICTIONAL REACH of the future profits of the concentration and to determine the value of the transaction. Application of the law • When possible, the use of historic and aggregated information to 6 Does the law apply to individuals, corporations and other evaluate the relevant aspects of the transaction and for planning entities? the final integration should be preferred. • The economic agents must establish protocols or strict rules The Federal Law of Economic Competition (LFCE) applies to individuals, regarding access to strategic information and sign a confidentiality corporations and other entities. Moreover, if the Federal Economic agreement regarding such information. Such rules must: Competition Commission (COFECE) determines that a corporation has • limit the use of information only to previous audits; been party to a cartel, individuals who have contributed to or repre- • indicate that access to strategic information will only be sented the corporation can be sanctioned for those actions, in addition granted to employees that must know such information and to the fine imposed on the corporation. whose functions do not include strategic operational decision- Government entities are also subject to the LFCE, and govern- making or sales; and ment officials may be sanctioned if they contribute to anticompetitive • create an integrated, isolated and compact team that is in practices. For example, the Rural Development Minister of the state of charge of the concentration. Jalisco was sanctioned by COFECE owing to his alleged collaboration with tortilla producers and retailers to fix the price of tortillas (COFECE Such a team will control the use and generation of the strategic informa- decision DE–009–2016). tion required by the horizontal concentration. It is recommended that this team:

174 Cartel Regulation 2021 © Law Business Research 2020 Valdes Abascal Abogados Mexico

Extraterritoriality INVESTIGATIONS 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If Steps in an investigation so, on what jurisdictional basis? 11 What are the typical steps in an investigation?

This matter has hardly been addressed by Mexican authorities, but An investigation can be initiated by the investigative authority of the there are some precedents in which the Mexican Federal Competition Federal Economic Competition Commission (COFECE), ex officio or Commission (CFC; which was replaced by COFECE in 2013) intervened through a complaint that can be lodged by any person. with respect to conduct that took place abroad. In IO–09–99, the CFC The investigation may last up to 120 business days. This period can learned that two foreign companies had pleaded guilty before a Texas be extended by COFECE up to four times, but only for justified causes. court to participating in an agreement to fix the price of various types of During this time, COFECE can issue information requests as well vitamins, with an international scope. Since the companies had affiliates as subpoenas and may practise dawn raids and obtain all the infor- and subsidiaries in Mexico, the CFC initiated a cartel investigation, given mation it needs to prosecute a suspected infringer of Federal Law of the possible extensive effects of the cartel in Mexico’s national territory. Economic Competition (LFCE). During the investigation, case files may In IO–002–2009, the COFECE learned, through the leniency not be accessed. programme, that several non-Mexican companies fixed prices globally in Once the investigation has finished, if COFECE’s investigative the market of production, distribution and commercialisation of hermetic authority considers there is enough evidence to presume the respon- compressors through the information exchange between their execu- sibility of a party, it submits to COFECE’s plenary a statement of tives in emails, telephone calls and meetings outside Mexican territory probable responsibility (DPR) describing the charges. The defendant (Brazil and Europe). The COFECE determined that the Mexican hermetic is summoned with the DPR and, thereafter, the proceeding follows the compressors market was affected by the global cartel as such products basic rules of a trial, in which the defendant has the constitutional rights were imported to Mexico for their commercialisation. The COFECE fined of due process; the investigative authority acts as a prosecutor and the the non-Mexican companies and their Mexican subsidiaries. complainant may cooperate with the latter. The LFCE grants 45 busi- In IO–001–2013 the COFECE learned, through the leniency ness days to the defendant to respond to the DPR and enclose the proof programme, that several non-Mexican companies rigged bids globally in in his or her possession to rebut the accusation. After all evidence is the market of production, distribution and integration of air-conditioned submitted, the defendant and the investigative authority may present compressors for automobiles. The COFECE determined that the Mexican written arguments in a 10-business-day term. Also, the defendant and air-conditioning compressors for automobiles market was affected by the complainant have the right to ask for a hearing before COFECE’s the global cartel as such products were used in the manufacture of plenary. Once this proceeding is concluded, COFECE’s plenary issues cars that were produced and sold in Mexico. The COFECE fined the non- its final decision. Mexican companies. At any time, the investigative authority may ask the plenary to issue a precautionary measure. The investigated party or defendant may ask Export cartels the plenary to determine a caution to avoid the precautionary measure, 8 Is there an exemption or defence for conduct that only affects and the amount should be enough to compensate for possible damages customers or other parties outside the jurisdiction? caused to the competition process by the anticompetitive conduct.

If an export cartel agreement has been reached within the Mexican Investigative powers of the authorities territory but does not produce effects within this territory, the economic 12 What investigative powers do the authorities have? Is court agents may argue lack of jurisdiction. approval required to invoke these powers?

Industry-specific provisions COFECE is empowered to perform dawn raids, which cannot last more 9 Are there any industry-specific infringements? Are there any than four months. If the implicated party is not at the corresponding industry-specific defences or exemptions? place, these proceedings can be carried out with any person found at the premises; there is no need to leave any kind of subpoena. There are no industry-specific infringements, defences or exemptions It is also empowered to request any person to provide the informa- for cartel conduct. The LFCE has transversal effect and includes all tion and documents deemed necessary to carry out the investigation. branches of economic activity, whether regulated or not. The authority can subpoena any person as well, to testify about facts under investigation. The implications of being requested or subpoenaed Government-approved conduct as the ‘denounced agent’, as a ‘third adjuvant’ or as a ‘person related 10 Is there a defence or exemption for state actions, to the investigated market’ are unclear, and thus it is unclear what government-approved activity or regulated conduct? rights these requested or summoned people have. There are no judicial binding specific criteria for competition and antitrust that suggests that In the event that two or more competing economic agents engage in requested or deponents’ information may not be used to incriminate cartel conduct due to a provision or rule that forces them, for example, them. Notwithstanding, the Supreme Court determined that the prin- to exchange information, such economic agents can defend themselves ciple of presumption of innocence and the right to remain silent are by alleging the unenforceability of other conduct, which it is a substan- applicable to administrative sanctioning proceedings. tive principle of criminal law that we consider applicable to cartel cases. These investigative powers may be invoked by COFECE’s investiga- tive authority without the approval of COFECE’s plenary or any court.

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INTERNATIONAL COOPERATION authority – hence the importance of taking advantage of this opportunity when answering the DPR (however, evidence can be submitted in an Inter-agency cooperation amparo trial against the final decision of COFECE). 13 Is there cooperation with authorities in other jurisdictions? The LFCE does not establish standards of proof to be satisfied by If so, what is the legal basis for, and extent of, such COFECE. Nevertheless, there are precedents in which Mexican Federal cooperation? Competition Commission (which was replaced by COFECE in 2013) acknowledged the existence of such standards (DE–22–2006 and IO–01– Yes. Inter-agency cooperation usually takes place through provisions 2007). In terms of these resolutions, the evidence contained in the file established in international free trade agreements or in cooperation must dismiss alternative hypotheses that could reasonably explain the agreements between agencies. situations observed in the market.

Interplay between jurisdictions Circumstantial evidence 14 Which jurisdictions have significant interplay with your 17 Can an infringement be established by using circumstantial jurisdiction in cross-border cases? If so, how does this affect evidence without direct evidence of the actual agreement? the investigation, prosecution and penalising of cartel activity in cross-border cases in your jurisdiction? A cartel can be sanctioned using circumstantial evidence. Considering that all participants in a cartel have the incentive to hide or destroy any Rules regarding cooperation between jurisdictions are contained in proof of their conduct, the Supreme Court has determined that there is specific chapters of various free trade agreements that Mexico has no need to prove the arrangement through direct evidence. Accordingly, entered into (with Chile, Colombia, European Free Trade Association, the a presumption of the existence of a cartel is enough to sanction it under European Union, Israel, Japan, North America, Uruguay and Venezuela). the terms of the LFCE, as long as such presumption relies on facts that They are also contained in bilateral antitrust treaties with Canada, Chile, have been proven through direct evidence. Korea and the United States. Among these jurisdictions, the most signif- icant interplay takes place with the US. Appeal process People cooperating under the leniency programme established 18 What is the appeal process? in article 103 of the Federal Law of Economic Competition (LFCE) are entitled to object to the Federal Economic Competition Commission The parties can initiate an amparo trial before a federal district judge (COFECE) about sharing their data and the information provided under against a decision of COFECE, who will rule on violations to fundamental this programme. COFECE may ask some economic agents under the rights during the administrative proceeding or in the adjudication. The leniency programme to grant an authorisation or waiver to share infor- amparo ruling may be appealed before the circuit courts. Only after this mation with other agencies. latter decision can the cartel case be considered legally settled.

CARTEL PROCEEDINGS SANCTIONS

Decisions Criminal sanctions 15 How is a cartel proceeding adjudicated or determined? 19 What, if any, criminal sanctions are there for cartel activity?

Cartel cases are determined by the plenary of the Federal Economic According to article 254-bis of the Federal Criminal Code, individuals Competition Commission (COFECE). This body consists of seven face sanctions of between five and 10 years’ imprisonment for entering, commissioners, and decisions are taken by a simple majority. ordering or executing any contract or arrangement between competi- tors for one or more of the purposes or effects listed under article 53 of Burden of proof the Federal Law of Economic Competition (LFCE). 16 Which party has the burden of proof? What is the level of For a criminal action to be lodged, the Federal Economic Competition proof required? Commission (COFECE) must bring charges before the public prosecutor. Charges may be pressed with the statement of probable responsibility A systematic interpretation of articles 73 and 79 of the Federal Law of (DPR). The term in which the criminal action expires is seven-and-a- Economic Competition (LFCE) indicates that COFECE has the burden of half years. proof in cartel cases. Indeed, the law empowers it to issue requests for Considering criminal sanctions for cartel conduct were enacted information and documents, to perform dawn raids and to subpoena in 2011 and that the main procedural obstacle to pressing charges parties to testify with the purpose of gathering evidence to prove the was recently removed (previous to 2014, in order for COFECE to press responsibility of the alleged infringers. Moreover, article 79 establishes charges, a final judgment of administrative responsibility was needed), that the statement of probable responsibility (DPR) shall contain the there is no experience in Mexico regarding criminal sanctions for evidence that COFECE considered subpoenaing from the party to the cartel conduct. There are only two cases in which COFECE has brought administrative trial. In short, COFECE must not issue a DPR without charges before the public prosecutor, which are currently under way. sufficient evidence. Defendants have 45 business days to answer a DPR and submit the Civil and administrative sanctions necessary evidence to rebut the accusation. It should not, however, be 20 What civil or administrative sanctions are there for cartel understood that the burden of proof is thus passed on to the defendant; activity? rather, defendants have the opportunity to prove a different theory of the case. Cartel conduct is sanctioned with a fine of up to the equivalent of 10 Certainly, not presenting evidence does not entitle COFECE to per cent of the infringer’s income. In case of recidivism, COFECE may presume responsibility. Nevertheless, amparo trials do not allow parties impose a fine of up to two times the applicable fine or order the dives- to submit different evidence from that provided to the administrative titure of assets.

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Individuals that represent or collaborate with the company in • confirmation that said illegal conduct was committed as a result committing anticompetitive practices are liable to receive fines of up of instigation of another economic agent, clearing the fact that the to 17.4 million Mexican pesos. Such individuals also face disqualifica- offender played a leadership role in the adoption of the conduct. tion from acting as an adviser, administrator, director, manager, officer, executive, agent, representative or proxy at any company for up to In the decision issued on file IO–004–2012, an economic agent that was five years. sanctioned for participating in a cartel claimed to have taken measures Individuals that contributed, facilitated or instigated the execution to prevent activities that imply or that may imply the execution of an of cartel conduct are liable to receive a fine of up to 15.6 million pesos. absolute monopolistic practice; to have implemented a series of actions to capacitate the staff; and improve their procedures and internal Guidelines for sanction levels controls to monitor the enforcement of the law. However, the economic 21 Do fining or sentencing principles or guidelines exist? If yes, agent did not present evidence of these actions, thus COFECE pointed are they binding on the adjudicator? If no, how are penalty out that it was not possible to consider that element to calculate the levels normally established? What are the main aggravating applicable sanctions. This consideration was formulated in the section and mitigating factors that are considered? in which the indicium of intention was analysed as an element to indi- vidualise the corresponding sanction. According to article 130 of the LFCE, when determining the fine to Given this, it would seem that the existence of a compliance be imposed for anticompetitive conduct, COFECE must consider the programme might be taken into account by COFECE when imposing a infringer’s economic capacity as well as the gravity of the conduct. To fine on the economic agent that implemented the programme. determine the latter, the COFECE shall assess the following elements: • the damage derived from the conduct; Director disqualification • the indicia of intention; 23 Are individuals involved in cartel activity subject to orders • the defendant’s market share; prohibiting them from serving as corporate directors or • the size of the affected market; officers? • the duration of the conduct; and • possible obstruction of COFECE actions. Individuals that represent or collaborate with the company in commit- ting anticompetitive practices could face disqualification from acting as Although COFECE has the discretion to determine the amount of the fine, an adviser, administrator, director, manager, officer, executive, agent, said authority, in addition to considering the aforementioned elements, representative or proxy at any company for up to five years. According must also take into account the principles established in articles 176 to to article 178 of the Regulatory Provision of the LFCE, in order to impose 186 of the Regulatory Provisions of the LFCE. that sanction, COFECE must prove the existence of malice of these In the case of recidivism, COFECE may impose a penalty of up individuals. to two times the applicable fine or order the divestiture of assets. Alternatively, in 2018, a collegiate court solved that the unenforceability Debarment of another conduct as a defence against criminal liability may also apply 24 Is debarment from government procurement procedures in antitrust matters. Also, the court pointed out that such defence may automatic, available as a discretionary sanction, or not only apply when the unenforceability of another conduct was proven available in response to cartel infringements? sufficiently. Criminal sanctions shall be imposed by the corresponding federal Debarment from government procurement procedures is not explicitly criminal judge. As provided by the Federal Criminal Code, prison punish- covered by competition law. Notwithstanding, if cartel conduct (more ments will range from five to 10 years, depending on the aggravating or likely bid rigging) is committed against government entities, the Ministry mitigating circumstances of each case. of Public Services may debar the infringers under article 60 of the Law According to article 134 of the LFCE, monetary relief equivalent of Procurement, Leasing and Services for the Public Sector. to the actual damages and losses caused by the defendants may be claimed by the affected parties before the specialised courts. Parallel proceedings Consideration of the elements listed in article 130 of the LFCE is 25 Where possible sanctions for cartel activity include criminal binding upon COFECE, and the range of imprisonment time established and civil or administrative penalties, can they be pursued by the Federal Criminal Code is binding upon the judge. in respect of the same conduct? If not, when and how is the choice of which sanction to pursue made? Compliance programmes 22 Are sanctions reduced if the organisation had a compliance Yes. Once the COFECE’s investigative authority has issued a DPR, it may programme in place at the time of the infringement? bring criminal charges before the public prosecutor. According to article 134, administrative responsibility is a condi- Although the LFCE does not explicitly state that a compliance programme tion to initiate individual or class actions before civil courts, in order can reduce the sanction, article 130 states that one of the criteria for the to claim compensation for the damages derived from the anticompeti- imposition of a sanction can be the intention of the conduct. Article 182 tive practice. of COFECE’s Regulatory Provisions states that to analyse the indicia of intention, the following circumstances shall be taken into account: • the moment of termination of the conduct, whether it was before, during or after the investigation or before, during or after the proceeding; • confirmation that said illegal conduct was committed as a result of suggestion, instigation or encouragement of any public authority; • actions taken to hide the conduct; and www.lexology.com/gtdt 177 © Law Business Research 2020 Mexico Valdes Abascal Abogados

PRIVATE RIGHTS OF ACTION amount of one unit of measurement (the basis for calculating fines in Mexico) and are updated, so that the first applicant is, in practice, Private damage claims awarded full immunity, while the applicable fines of second and subse- 26 Are private damage claims available for direct and indirect quent applicants are reduced by up to 50, 30 or 20 per cent. The level of purchasers? Do purchasers that acquired the affected reduction depends on the amount and quality of the evidence provided product from non-cartel members also have the ability to to the COFECE and the cooperation provided during the proceedings. bring claims based on alleged parallel increases in the All qualified beneficiaries of the leniency programme will be prices they paid (‘umbrella purchaser claims’)? What level of exempted from criminal responsibility, but will still be subject to private damages and cost awards can be recovered? monetary damage claims through individual or class actions.

Yes, private damage claims are available. Subsequent cooperating parties Damages claims for antitrust infringements have not been frequent 29 Is there a formal programme providing partial leniency for in Mexico, since a decision from the competition authority judging a parties that cooperate after an immunity application has been party to be responsible (as a legally settled matter) is necessary for made? If so, what are the basic elements of the programme? initiating a civil process on the matter. Thus, private antitrust tort prac- If not, to what extent can subsequent cooperating parties tice is still under development. expect to receive favourable treatment? Administrative responsibility is a condition to initiate individual or class actions before civil courts, which means that, according to article Yes. The applicable fine for the second and subsequent applicants may 134, it is not possible to claim damages to economic agents that have be reduced by up to 50, 30 or 20 per cent and they will be exempted from not been a part of a cartel. criminal responsibility.

Class actions Going in second 27 Are class actions possible? If so, what is the process for such 30 How is the second cooperating party treated? Is there an cases? If not, what is the scope for representative or group ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, actions and what is the process for such cases? how does it operate?

As provided in article 585 of the Federal Code of Civil Proceedings, class Second and subsequent applicants who provide the Federal Economic actions can be lodged by: Competition Commission (COFECE) with additional evidence may get • the Federal Economic Competition Commission; reductions of up to 50, 30 or 20 per cent of the applicable fine, consid- • no fewer than 30 members of a class; ering the timing of the application and the sufficiency of the evidence • not-for-profit civil associations whose purpose is the defence of they provide to the authority. Also, as previously stated, all qualified rights and interests in antitrust matters; and beneficiaries of the leniency programme will be exempted from criminal • the Attorney-General of Mexico. responsibility, notwithstanding the time in which they applied.

This regime came into force in February 2012 and there has only been Approaching the authorities one class action since then. Therefore, the efficiency of its implemen- 31 Are there deadlines for initiating or completing an application tation, such as the balance of its advantages and disadvantages, is for immunity or partial leniency? Are markers available and still pending. what are the time limits and conditions applicable to them?

COOPERATING PARTIES Leniency may be sought at any moment before COFECE has ended the cartel investigation proceeding. Since only the first applicant may obtain Immunity full immunity and the order in which subsequent applicants approach 28 Is there an immunity programme? If so, what are the basic COFECE will be considered to fix the percentage of the fine reduc- elements of the programme? What is the importance of being tion, time is crucial in applying for leniency. COFECE uses markers in ‘first in’ to cooperate? order to determine who the first applicant is and who the subsequent applicants are. Article 103 of the Federal Law of Economic Competition (LFCE), as well as the Mexican Federal Competition Commission’s Regulatory Provisions Cooperation for the Immunity and Sanction Reduction Program foreseen in article 32 What is the nature, level and timing of cooperation that 103 of the LFCE (which came into force in March 2020) contemplate the is required or expected from an immunity applicant? Is leniency, immunity or amnesty programme and the procedure to access there any difference in the requirements or expectations to such programme. In June 2015, the Federal Economic Competition for subsequent cooperating parties that are seeking partial Commission (COFECE) issued the Immunity and Reduction of Sanctions leniency? Programme Guidelines. These guidelines show the criteria upon which the COFECE applies the law and regulations regarding leniency. The applicant must submit evidence, cooperate fully and continuously Any corporation or individual who has been or is involved in cartel with the COFECE during the corresponding proceeding, and cease its activity may apply for leniency. participation in the cartel activity. All applicants, in order to qualify, must In order to qualify for the programme, the applicant must submit submit more information than the one that is available in the records evidence, fully and continuously cooperate with the COFECE during of the investigation and the information submitted by the previous the corresponding proceeding, and cease its participation in the applicant(s). cartel activity. One of the benefits of the programme consists of reductions in the applicable administrative fines. The fines may be fixed at the symbolic

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Confidentiality • A detailed description of the good or service, including its use, 33 What confidentiality protection is afforded to the immunity characteristics and price. applicant? Is the same level of confidentiality protection • A narrative of the collusive agreement or information exchange, applicable to subsequent cooperating parties? What describing the conduct or conducts that are being performed or information will become public during the proceedings and that were performed. In this narrative, it must be admitted that when? the applicant participated in such conduct. Also, to back up such narrative the applicant can provide agreements, memoranda, COFECE will keep confidential the identity of all leniency applicants minutes, activity reports, correspondence, emails, telephone during the proceeding and even after the cartel is sanctioned. In addi- records, personal reports and signed testimonies of the partici- tion, COFECE will not share the identity of or the information provided pants, among other documents. When the applicant provides by the applicants with other jurisdictions unless it is authorised to do so digital evidence from computers, laptops, smartphones and other in writing by the applicant, only when such disclosure does not hinder electronic devices, the source and extraction method of the infor- the powers of COFECE. mation must be provided. • The identities of the individuals and legal entities involved in the Settlements collusive agreement or in the information exchange. 34 Does the investigating or prosecuting authority have the • The duration of the conduct, the geographical reach of such ability to enter into a plea bargain, settlement, deferred conduct and specific time of the agreements including the status prosecution agreement (or non-prosecution agreement) or of the applicant’s participation (whether its participation has other binding resolution with a party to resolve liability and ceased or not). penalty for alleged cartel activity? What, if any, judicial or • A narrative regarding how the agreements worked (eg, how the other oversight applies to such settlements? participants communicated, the methods for the information exchange, etc). If the requirements are fulfilled by the applicant, COFECE issues a reso- • Details of the meetings, communications and agreements, including lution expressing the applicant’s place in line and the corresponding dates, places, participants, objectives and the achieved results. fine reduction. The benefit will be conditional upon the cooperation of • Actions taken to ensure, follow up and verify compliance of the the applicant during the investigation and sanction proceedings. If appli- agreements entered into by competitors. cants fail to cooperate (eg, if the applicant destroys or hides evidence • A statement about the existence of hard copies of information or alerts other cartel participants to the investigation), they will lose the exchange or agreements, if applicable. And benefits of the leniency programme. • Identify the relevant information that is not available for the appli- Also, the plenary of COFECE is entitled to request the dismissal of cant and the reasons that explain its unavailability (eg, the company the criminal case if the administrative sanctions are complied with by the is not the owner or has been destroyed). economic agent, as long as the following criteria are met: an absence of pending appeals against COFECE’s decisions, and the economic agent is Likewise, the guidelines establish that cooperation during investigation a first-time offender in the terms provided by article 127 of the LFCE and proceedings includes: in the terms provided by article 254-bis of the Federal Criminal Code. • terminating the cartel conduct; • keeping confidentiality regarding the information that was deliv- Corporate defendant and employees ered to the COFECE during its application, at least until the 35 When immunity or partial leniency is granted to a corporate publication of the investigation notice; defendant, how will its current and former employees be • delivering all requested information within the terms granted by treated? the COFECE; • cooperating during the investigation errands; Leniency or immunity granted to a corporation is extended to its employees • implementing all possible actions in order to make the involved to the extent that they apply and qualify for the programme and provide individuals to participate in the investigation (ie, when they are full and continuous cooperation with the COFECE. If the corporation fails subpoenaed); and to provide full and continuous cooperation, but employees who received • refrain from destroying, falsifying or hiding information. the extension provide such cooperation, these employees will remain protected as if they were the applicants themselves. Also, according to the guidelines cooperation during the sanction proceeding includes: Dealing with the enforcement agency • refrain from denying, directly or through the submission of 36 What are the practical steps for an immunity applicant evidence, the participation in the cartel; or subsequent cooperating party in dealing with the • submitting useful new evidence; enforcement agency? • refrain from destroying, falsifying or hiding information; and • cooperating during the procedural errands. If a corporation detects potential cartel activity, it should conduct an internal investigation to assess the existence of enough elements to DEFENDING A CASE prove such activity. If so, it should move quickly to apply for the leniency programme. Since providing COFECE with enough evidence is a require- Disclosure ment to qualify for the programme, in the absence of such evidence, it 37 What information or evidence is disclosed to a defendant by will be better to prepare a strong defence instead of applying for the the enforcement authorities? programme. According to the Guidelines on the Immunity and Reduction of According to article 79 of the Federal Law of Economic Competition Sanctions Programme, the following are examples of the information (LFCE), the following information or evidence should be contained in the and documents that may be submitted during the application. authority’s statement of probable responsibility (DPR): www.lexology.com/gtdt 179 © Law Business Research 2020 Mexico Valdes Abascal Abogados

• the identification of the economic agents under investigation and, if possible, the corresponding persons; • the matter under investigation and the probable purpose or effects on the market; • the evidence and other elements of conviction available on the file and its analysis; and • the elements that support the DPR and the legal provisions that are considered infringed, as well as the consequences that may result from such infringements.

Representing employees Rafael Valdés Abascal 38 May counsel represent employees under investigation in [email protected] addition to the corporation that employs them? When should a present or past employee be advised to obtain independent Agustín Aguilar López [email protected] legal advice or representation?

Counsel may represent both the corporation and its employees if a Guillermo González Camarena 1450, 5th Floor conflict of interest does not exist or a potential conflict of interest is not Santa Fe foreseeable. 01210 Mexico City Mexico Multiple corporate defendants Tel: +52 55 5950 1580 Fax: +52 55 5950 1589 39 May counsel represent multiple corporate defendants? Does www.vaasc.com it depend on whether they are affiliated?

Counsel may represent multiple corporate defendants to the extent a conflict of interest does not exist or a potential conflict of interest is not For a fine to be applied, the requirements under the LFCE for foreseeable. If evidence of the cartel activity exists, counsel should not confirmation of the existence of cartel conduct must be satisfied. An represent multiple defendants, since each of them will be interested in economic agent’s conduct towards COFECE (ie, interfering or coop- applying for the leniency programme. erating with the Commission in the execution of its powers) are considered mitigating factors when calculating the fine. Mitigation Payment of penalties and legal costs does not apply if an economic agent seeks to obtain the benefit of the 40 May a corporation pay the legal penalties imposed on its Leniency Program. employees and their legal costs? The existence of a compliance programme may help reduce a fine, as it is one of the elements that COFECE may consider as indicia of Yes, if it is not prohibited by the corporation’s policies. intention when imposing a fine.

Taxes UPDATE AND TRENDS 41 Are fines or other penalties tax-deductible? Are private damages payments tax-deductible? Recent cases 44 What were the key cases, judgments and other developments Private damages awards are tax-deductible while fines are not. of the past year?

International double jeopardy In April 2019, a specialised federal court issued a decision ruling that 42 Do the sanctions imposed on corporations or individuals take two economic agents that belong to the same economic interest group, into account any penalties imposed in other jurisdictions? In in the context of a public procurement, can be considered competitors private damage claims, is overlapping liability for damages in to each other and, therefore, can engage in cartel conduct. Considering other jurisdictions taken into account? the sense of this ruling, the Federal Economic Competition Commission (COFECE) sanctioned the economic agents for cartel behaviour. It is Mexican competition law does not contemplate cases of double jeopardy, important to mention that, historically, it has been considered that the and no administrative or judicial criteria have yet been issued on this economic agents that belong to the same economic interest group can matter. Notwithstanding, sanctions for non-compliance of local legislation not be considered competitors among themselves, so they can not incur can co-exist with sanctions imposed in other countries. Damages awarded in absolute monopolistic practices. and paid in another country should be taken into account whenever such damages include concepts that demand compensation in Mexico. Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed Getting the fine down changes to the legal framework, the immunity/leniency 43 What is the optimal way in which to get the fine down? programmes or other elements of the regime?

The best way to get the fine down is to apply for the leniency programme. We do not expect that the current regime will be subject to any modifi- However, for those who do not qualify for the programme, immediately cation soon. ceasing participation in the alleged cartel and cooperating with the COFECE during investigation and sanction proceedings may lead the authority to consider a lower fine.

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Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

On 24 April 2020, COFECE’s Emergency Regulatory Provisions of the Federal Law of Economic Competition (LFCE) to perform personal notifi- cations via electronic mail came into force, which was applicable, among others, to cartels investigations and administrative trial. On 26 July 2020, COFECE’s Emergency Regulatory Provisions of the LFCE regarding the use of electronic media in certain procedures followed by the COFECE came into force. This abrogated the regula- tion mentioned in the previous paragraph and established the rules to use electronic media to perform notifications and proceedings before COFECE in, among others, the following procedures regarding cartel conduct: • the submission of complaints; • the investigation phase; • applying to the Leniency Programme; and • an administrative trial.

However, on 27 March 2020, COFECE issued a press release in which stated that in the current context of a public health emergency any collaboration agreement between economic agents that meets the following criteria would not be subject to investigation: • is necessary to maintain or increase supply, satisfy demand, protect supply chains, avoid shortages or hoarding of merchandise; • is temporary; and • does not intend to fix or manipulate prices, reduce supply or segment the market in order to affect consumers or to displace competitors that also supply the market.

In order to clarify this press release, the COFECE issued another press release issued on 1 April 2020, establishing that economic agents must inform it of their intention to form such agreements, in order for the authority to analyse the agreement. Once satisfied the agreement does not have an anticompetitive purpose, the COFECE will inform the appli- cant that such conduct will not be investigated if it is carried out during the crisis.

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Mário Marques Mendes and Alexandra Dias Henriques Gómez-Acebo & Pombo

LEGISLATION AND INSTITUTIONS agreements, decisions and practices, and to the judicial review of sanctioning decisions; Relevant legislation • the Penal Code and the Criminal Procedure Code, both of which 1 What is the relevant legislation? apply on a subsidiary basis to quasi-criminal minor offences by virtue of the general regime on quasi-criminal minor offences; The Portuguese Constitution lists the following among the general prin- • the Civil Code and the Civil Procedure Code regarding civil liability ciples of economic organisation and as primary duties of the state: for anticompetitive infringements; and • ensuring the efficient functioning of the market to guarantee • Law 23/2018 of 5 June, which implemented in Portugal the EU balanced competition between undertakings; Private Enforcement Directive (the Private Damages Act), which • opposing monopolistic forms of organisation; entered into force on 4 August 2018. • pursuing abuses of dominant position and other practices that may harm the general interest; and Relevant institutions • guaranteeing the protection of the interests and rights of 2 Which authority investigates cartel matters? Is there the consumer. a separate prosecution authority? Are cartel matters adjudicated or determined by the enforcement agency, a The Constitution has evolved from the original 1976 version to reflect separate tribunal or the courts? the various (if not somewhat conflicting) political, social and economic concerns of the . That said, the principles referred to above, Cartel matters are investigated and decided by the AdC. There is no along with the recognition of private property, private enterprise and separate prosecution authority. consumer protection, show that competition is seen as an essential According to its statutes the AdC is an independent administrative element of the Portuguese . entity endowed with administrative and financial autonomy, manage- The Portuguese competition regime underwent significant reform ment autonomy and organic functional and technical independence and in 2012 with the adoption of a new Competition Act, Law No. 19/2012 of with own assets. As per the statutes, the AdC’s mission is the promo- 8 May (the Act), which superseded the previous regime put in place by tion and defence of competition in the public, private, cooperative and Law No. 18/2003 of 11 June (the former Competition Act). social sectors, in compliance with the principle of market economy The Act largely follows the rules established at EU level and and freedom of competition having in view the efficient functioning of addresses agreements between undertakings, decisions of associa- the markets, the optimal allocation of resources and the interests of tions of undertakings and undertakings’ concerted practices (as well consumers. as the abuse of a dominant position, the abuse of economic depend- The responsibilities of the AdC include: ence, concentrations and state aid). The Act also includes the leniency • ensuring compliance with national and EU competition laws, regu- regime for immunity or reduction of fines imposed for breach of compe- lations and decisions; tition rules, which was formerly set forth in a separate statute (Law No. • implementing practices that may promote competition and develop 39/2006 of 25 August). a competition culture among economic operators and the public Decree-Law No. 125/2014 of 18 August adopted and approved the in general; new statutes of the Competition Authority (Autoridade da Concorrência • establishing priority levels as regards matters which the AdC is – the AdC), superseding Decree-Law No. 10/2003 of 18 January, which called to assess, under the competition legal regime; created the AdC and approved its former statutes. • releasing, notably among the economic operators, guidelines As regards appeals, Law No. 46/2011 of 24 June 2011 determined deemed relevant for the competition policy; the creation of a specialised court to handle competition, regulation and • following the activity of, and establishing cooperation links with, supervision matters (the Specialised Court), which was established in the EU institutions, national, foreign and international entities with the town of Santarém as of 30 March 2012. The new Specialised Court is responsibilities in the area of competition; now the exclusive first instance for review of all the decisions adopted • promoting research in the area of competition law; by the AdC. • contributing to the improvement of Portuguese legal regimes in all Also relevant are: areas relevant to competition; • Regulation No. 1/2013 of 3 January 2013, which sets out the leni- • carrying out the tasks conferred upon member states’ administra- ency administrative procedure; tive authorities by EU law in the field of competition; and • the general regime on quasi-criminal minor offences (enacted by • ensuring the technical representation of the Portuguese state in EU Decree-Law No. 433/82 of 27 October 1982), which applies, on a or international institutions in competition policy matters, without subsidiary basis, to the administrative procedure on anticompetitive prejudice to the powers of the Foreign Affairs Ministry.

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The AdC is composed of two bodies: the Board of Directors and the Sole or according to commercial usage, have no connection with the Supervisor, supported by the organisation required for the performance subject of the contracts. of the AdC’s responsibilities, established in an internal regulation. The Board of Directors is the highest body of the AdC and is respon- Cartels are likely to correspond to one or more of these situations. sible for the definition of the AdC’s action and by the management of Furthermore, acts not listed under article 9 may naturally fall within its the AdC’s services. The Board of Directors consists of a chair and up to scope, provided that the conditions for its application are fulfilled. three other members. A vice president may also be appointed as long Only significant restrictions of competition are relevant, excluding as in total an odd number of members is maintained. The members are de minimis infringements. appointed by the Council of Ministers upon the proposal of the minister The AdC has already interpreted article 9 of the Act in the sense for economic affairs and pursuant to the hearing of the competent that infringements the object of which is to prevent, distort or restrict parliament commission. competition (as opposed to infringements the effects of which are to The Sole Supervisor is responsible for the control of the legal, prevent, distort or restrict competition) are infringements per se, insofar regular and sound management of the AdC’s assets and financial as they are prohibited because they represent a danger to competi- management, and also carries out an advisory role to the Board of tion whether or not they produce the effects that they potentiate (see, Directors. The Sole Supervisor is a chartered accountant or a chartered for instance, the AdC’s decision in case 1/2011 regarding competitive accountancy firm appointed by joint decision of the ministers respon- restrictive practices in the production, processing and marketing of flex- sible for financial and economic affairs. The Sole Supervisor must be an ible polyurethane foam). auditor registered with the Securities Market Commission or, if this is Infringements to article 9 of the Act constitute quasi-criminal minor not adequate, a chartered accountant or a chartered accountancy firm offences and are punished as either intentional (cases where undertak- member of the Chartered Accountants Chamber. ings act intentionally and aware of the unlawfulness of their conduct) or negligent (violation of duties of care) behaviours (see articles 67 and Changes 68 of the Act). 3 Have there been any recent changes, or proposals for change, to the regime? Joint ventures and strategic alliances 5 To what extent are joint ventures and strategic alliances Law No. 19/2012 of 8 May superseded the previous regime put in place potentially subject to the cartel laws? by Law No. 18/2003 of 11 June. Pursuant to the Act, the current regime should be reviewed in accordance with the evolution of the EU compe- Joint ventures and other forms of business collaboration can raise tition regime. Meanwhile, Decree-Law No. 125/2014 of 18 August has competition law issues. The Act may need to be considered and cartel enacted the AdC’s statutes, superseding Decree-Law No. 10/2003 of risks may arise depending on the joint ventures and strategic alliances 18 January. specific features. Attention must be paid notably if the parties could It is also worth underlining the long-awaited implementation of be competitors on their own for the goods or services to be offered the EU Private Enforcement Directive through the Private Damages Act, by the joint venture or the strategic alliance in the absence of their which introduced changes to a number of articles of the Act, notably arrangement or agreement. Competition rules need also to be consid- regarding confidentiality and access to documents. ered regarding the level of separation between the parents of the joint The Act is expected to be amended along with the transposition of venture and the potential information sharing between them. Directive (EU) 2019/1 of the European Parliament and of the Council of 11 December 2018 (ECN+ Directive), which aims to give the member APPLICATION OF THE LAW AND JURISDICTIONAL REACH states’ competition authorities the power to apply the law more effec- tively and to ensure the proper functioning of the internal market. The Application of the law deadline for the transposition of the Directive into the member states’ 6 Does the law apply to individuals, corporations and other national legislation is 4 February 2021. entities?

Substantive law The definition of ‘undertaking’ adopted in the Competition Act, Law No. 4 What is the substantive law on cartels in the jurisdiction? 19/2012 of 8 May (the Act) is very broad and in line with EU case law. It covers any entity exercising an economic activity that involves the Article 9 of the Act, in line with article 101(1) of the Treaty on the supply of goods and services in a particular market, irrespective of its Functioning of the European Union (TFEU), prohibits agreements legal status or the way it is financed. Groups of undertakings are treated between undertakings, decisions by associations of undertakings and as a single undertaking where they make up an economic unit or main- concerted practices, in whatever form, having as their object or effect tain ties of interdependence or subordination among themselves. to prevent, distort or restrict competition in the whole or part of the national market to a considerable extent. It then lists some of the behav- Extraterritoriality iour that may be prohibited, including: 7 Does the regime apply to conduct that takes place outside the • directly or indirectly fixing purchase or sale prices or any other jurisdiction (including indirect sales into the jurisdiction)? If transaction conditions; so, on what jurisdictional basis? • limiting or controlling production, distribution, technical develop- ment or investments; The Act applies to restrictive practices occurring in Portugal or that may • sharing markets or sources of supply; have an effect within it. • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disad- vantage; and • making a condition of the signing of contracts the acceptance, by the other parties, of additional obligations that, by their nature www.lexology.com/gtdt 183 © Law Business Research 2020 Portugal Gómez-Acebo & Pombo

Export cartels Inquiry 8 Is there an exemption or defence for conduct that only affects Initiating an inquiry: principle of opportunity customers or other parties outside the jurisdiction? Under the Act, the AdC may initiate an inquiry ex officio or upon a complaint. In this respect, it should be noted that the Act has adopted No. the principle of opportunity, pursuant to which, in exercising its powers, the AdC shall be subject to the criteria of public interest in the promo- Industry-specific provisions tion and defence of competition, and on the basis of such criteria it may 9 Are there any industry-specific infringements? Are there any grant different degrees of priority in handling the matters it is called to industry-specific defences or exemptions? assess. In deciding whether proceedings for infringement of competi- tion rules shall be initiated, the AdC shall take into account: Under the Act, undertakings legally charged with the management • the competition policy priorities; of services of general economic interest or that benefit from legal • the elements of fact and of law that are submitted to the AdC; monopolies are subject to competition provisions, as long as the appli- • the seriousness of the possible infringement; cation of these rules does not impede, in law or in fact, the fulfilment of • the likelihood of proving the existence of the infringement; and their mission. • the scope of the investigation activity required to perform the According to article 10(1) of the Act, agreements, decisions and mission of ensuring compliance with national and EU competi- practices prohibited under article 9 may be considered justified, tion rules. provided that they contribute to improving the production or distribution of goods and services or to promoting technical or economic develop- The AdC has adopted the guidelines on the priorities in exercising ment. Similarly to the provisions of article 101(3) of the Treaty on the sanctioning powers and on the investigation in proceedings regarding Functioning of the European Union (TFEU), this exemption will only competition restrictive practices. apply when, cumulatively, they: The AdC shall register all complaints received and initiate the • allow the consumers of those goods and services a fair share of corresponding proceedings. However, if, on the basis of the informa- the resulting benefit; tion available, the AdC considers that there are no sufficient grounds • do not impose on the undertakings concerned any restrictions that for action, it shall inform the complainant and grant a delay of no fewer are not indispensable for attaining these objectives; and than 10 working days to submit observations. If such observations • do not afford such undertakings the possibility of eliminating are submitted by the complainant within the prescribed deadline, but competition in a substantial part of the product or service market the AdC does not change its position, declaring that the complaint has in question. no grounds or should not be granted priority, such a decision may be appealed to the Specialised Court. In the absence of a timely submission Undertakings invoking the above justification most prove they meet of observations, the case is closed. these conditions. Agreements, decisions or practices are also deemed justified Scope when, though not affecting trade between member states, they satisfy Within the framework of the inquiry, the AdC shall carry out all the the remaining application requirements of a block exemption regulation investigation actions required to establish the existence of an infringe- adopted under article 101(3) TFEU. This benefit may be withdrawn by ment and the infringers and to collect evidence. the Competition Authority (Autoridade da Concorrência – the AdC) if the behaviour covered leads to effects incompatible with the provisions of Settlement proceedings article 10(1) of the Act. During the inquiry phase, the AdC may fix a deadline to the concerned undertaking of no less than 10 working days to express in writing Government-approved conduct its intention of participating in discussions with the AdC aiming at a 10 Is there a defence or exemption for state actions, possible submission of a settlement proposal. During the inquiry phase, government-approved activity or regulated conduct? the concerned undertaking may also submit in writing to the AdC its intention of initiating the said discussions. There is no specific defence or exemption provided for in the Act A concerned undertaking participating in settlement discussions in this respect. As far as regulated sectors are concerned, the AdC’s shall be informed, 10 working days before the start of such discussions, responsibilities are carried out in cooperation with the corresponding of the facts that are attributed to it, of the evidence supporting the appli- regulatory authorities. The Act establishes a mutual information obliga- cation of a sanction and of the limits of the fine. tion regarding possible anticompetitive behaviour in those sectors that At the end of the discussions, the AdC notifies the concerned establishes the terms of their reciprocal cooperation. undertaking to submit a settlement proposal within a deadline of no fewer than 10 working days. The AdC may either reject the proposal (a INVESTIGATIONS decision that cannot be appealed) or accept it. In this latter case, the AdC shall prepare the draft settlement document, which it notifies to Steps in an investigation the concerned undertaking. The concerned undertaking shall, within 11 What are the typical steps in an investigation? a deadline of no fewer than 10 working days prescribed by the AdC, confirm that the draft settlement document reflects the settlement Proceedings regarding infringements of article 9 of the Competition Act, proposal. In the absence of such confirmation: Law No. 19/2012 of 8 May (the Act), as well as infringements of article • the draft settlement document becomes ineffective; 101 Treaty on the Functioning of the European Union (TFEU) that the • the infringement proceedings shall continue; and Competition Authority (Autoridade da Concorrência – the AdC) initiates • the settlement proposal is deemed ineffective and cannot be used or in which it is called to intervene, are governed by the Act and, on a as evidence against any undertaking involved in the settlement subsidiary basis, by the quasi-criminal minor offences regime. The most proceedings. relevant steps are as follows.

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The draft settlement document is converted into a definitive sanctioning collection, even after the submission of the written observations by the decision upon the above confirmation by the concerned undertaking concerned undertaking and its oral hearing. In this latter case, the AdC and upon payment of the applied fine. Facts included in the decision shall notify the concerned undertaking of the evidence gathered, fixing can no longer be used in other infringement proceedings and the facts a deadline of no fewer than 10 working days for submission of observa- confessed by the concerned undertaking cannot be rebutted in an tions. Furthermore, whenever the new evidence substantially changes appeal. Furthermore, a reduction of fine granted in leniency proceed- the facts initially attributed to the concerned undertaking, the AdC ings is added to the reduction granted in the settlement proceedings. shall issue a new statement of objections, the above applying mutatis mutandis. Pursuant to the Act, the AdC has adopted guidelines on the Closure with conditions investigations and procedural steps. The AdC may also accept commitments offered by a concerned under- taking that are likely to eliminate the effects on competition of the Settlement proceedings practices under scrutiny, closing the case with conditions attached In its observations regarding the statement of objections, the concerned aimed at guaranteeing compliance with the commitments offered. undertaking may also submit a settlement proposal, in which case the Before approving a decision to close the case with conditions attached, proceedings shall be suspended for a period established by the AdC that the AdC shall publish on its website and in two major national newspa- cannot exceed 30 working days. The remaining steps of the settlement pers, at the expense of the concerned undertaking, a summary of the proceedings are largely similar to those indicated above in respect of case, fixing a deadline of no fewer than 20 working days for submission the submission of a settlement proposal during the inquiry phase. of observations by interested third parties. The AdC may reopen the case closed within two years with conditions attached if: Closure with conditions • a substantial change in the facts on which the decision was During the investigation phase, the AdC may also close the case with grounded has occurred; conditions attached, under the same terms as those referred to above. • the conditions attached to the decision are not complied with; or • the closure decision was grounded on false, inaccurate or incom- Decision plete information. The investigation must be concluded within a maximum deadline of 12 months from the notification of the statement of objections. However, Decision if such deadline cannot be met, the Council of the AdC shall inform the The inquiry must be concluded within a maximum deadline of 18 months. concerned undertaking thereof, indicating the period required for the However, if such deadline cannot be met, the Council of the AdC (the completion of the investigation. Upon completion of the investigation, AdC’s decision-making body) shall inform the concerned undertaking of the AdC may: that fact, indicating the period required for the completion of the inquiry. • declare the existence of restrictive practice and, if applicable, Upon completion of the inquiry, the AdC may: consider such practice justified under article 10 of the Act; • start the investigation phase notifying the concerned undertaking • adopt a sanctioning decision within settlement proceedings; of the statement of objections, when the AdC concludes that, on the • close the case with conditions attached, under the terms referred basis of the findings, there is a reasonable possibility of adoption of to above; or a sanctioning decision; • close the case without conditions. • close the case when the findings do not allow for the conclu- sion that there is a reasonable possibility of adoption of a Decisions declaring the existence of a restrictive practice may include sanctioning decision; the admonition or the application of fines and other sanctions set in the • put an end to the proceedings adopting a sanctioning decision Act and, if required, the imposition of behavioural or structural remedies within settlement proceedings; or indispensable to put an end to the restrictive practice or to the effects • close the file with conditions attached, under the terms thereof. Structural remedies may only be imposed in the absence of referred to above. a behavioural remedy equally effective, or, if such remedy exists, it is more costly to the concerned undertaking than the structural remedy. If the inquiry has been initiated following a complaint and the AdC considers, on the basis of the findings, that there is no reasonable Interim measures possibility of adoption of a sanctioning decision, the AdC informs the The AdC may, at any time during the proceedings, order the suspension complainant thereof, fixing a deadline of no fewer than 10 working of a restrictive practice or impose other interim measures required to days for the submission of observations. If such observations are restore competition, or indispensable to the effectiveness of the final submitted and the AdC’s position remains unchanged, the latter shall decision to be adopted, if the findings indicate that the practice in ques- adopt an express closure decision, which may be appealed to the tion is about to cause serious damage that is irreparable or difficult Specialised Court. to repair. The interim measures may be adopted by the AdC ex officio or upon Investigation request by any interested party and shall be effective until they are Scope revoked and for a period of up to 90 days, extendable for equal periods In the statement of objections, the AdC shall fix to the concerned under- within the time limits of the proceedings. The imposition of interim taking a deadline of no fewer than 20 working days to submit written measures is subject to a prior hearing of the concerned undertaking, observations on the matters that may be relevant to the decision and except if such hearing puts at risk the effectiveness of the measures, on the evidence gathered, and to request complementary evidence it in which case the concerned undertaking is heard after the measure is may deem convenient. Within its submitted observations, the concerned adopted. Whenever a market subject to sectoral regulation is concerned, undertaking may request an oral hearing. Upon a reasoned deci- the opinion of the corresponding sectoral regulator shall be requested. sion, the AdC may refuse to undertake additional action with regard to complementary evidence if it considers that the request has mere delaying purposes. The AdC may also carry out additional evidence www.lexology.com/gtdt 185 © Law Business Research 2020 Portugal Gómez-Acebo & Pombo

Liaison with sectoral regulators that such documents are related to the infringement or are of great Whenever the infringement occurs in a sector subject to specific regu- interest to establish the facts. lation, the AdC shall immediately inform the corresponding regulatory authority, so that the latter may submit observations. Furthermore, INTERNATIONAL COOPERATION prior to the adoption of the final decision, the AdC shall obtain a prior opinion from the relevant regulatory authority, except in the case of Inter-agency cooperation a decision of closure of the case without conditions. Likewise, when a 13 Is there cooperation with authorities in other jurisdictions? sectoral regulatory authority assesses a practice that may amount to If so, what is the legal basis for, and extent of, such a violation of competition rules, it shall immediately inform the AdC. In cooperation? this latter case, the sectoral authority, before issuing a final decision, shall submit a draft thereof to the AdC to obtain its opinion. Following the decentralisation carried out under Council Regulation No. 1/2003, cooperation between national competition authorities, including Investigative powers of the authorities the Competition Authority (Autoridade da Concorrência – the AdC) and 12 What investigative powers do the authorities have? Is court the European Commission, takes place in the framework of the European approval required to invoke these powers? Competition Network (ECN). According to the last Activity Report made available, in 2018 the AdC participated in 25 working group ECN meet- The Act enhanced the extensive powers of investigation already granted ings, in the ECN network Plenary and in the General-Directors’ meeting, to the AdC by Law No. 18/2003 of 11 June (the former Competition Act). as well as in seven oral hearings and meetings of the advisory commit- Under the Act, in investigating restrictive practices the AdC may: tees on restrictive practices and merger control. According to the same • question the concerned undertaking and other persons involved, Activity Report, in 2018 the AdC announced the opening of 12 infringe- personally or through their legal representatives, and request ment cases regarding potential infringements of articles 101 and 102 from them documents and other data deemed convenient or neces- of the Treaty on the Functioning of the European Union (TFEU) to the sary to clarify the facts; ECN Network. The AdC also emphasises its position as coordinator of • question any other persons, personally or through their legal the Working Group on Cooperation Issues and Due Process, together representatives, whose statements are considered relevant, and with the national competition authorities of Germany and Hungary. This request from them documents and other data; working group closely monitored the developments in the preparation • carry out searches, examine, collect and seize extracts from and negotiation of the Empowering National Competition Authorities accounting records or other documentation at the premises, land Directive (EU) No. 2019/1 (ECN+ Directive), which aims to give EU or transportation means of the undertakings or associations of member states’ competition authorities the power to apply the law more undertakings (this action requires a decision from the competent effectively and to ensure the proper functioning of the internal market. judicial authority, issued upon an AdC’s substantiated application); Besides such cooperation, the AdC is also a member of the • during the period strictly required for the foregoing measures, seal European Competition Authorities Association (ECA). Furthermore, at the premises and locations of the undertakings or associations of a multilateral level, the AdC cooperates within international organisa- undertakings where accounting records or other documentation, tions, including the OECD and the United Nations Conference on Trade as well as supporting equipment, may be found or are likely to be and Development (UNTAD). The AdC also participates in multilateral found (this action requires a decision from the competent judicial cooperation networks, such as the International Competition Network authority, issued upon an AdC’s substantiated application); or (ICN) (where the AdC’s president, Margarida Matos Rosa, has assumed • request from any public administration services, including police a place in the Directive Committee for the period 2019-2021), the authorities, the assistance that may be required for the perfor- Portuguese Speaking Countries Competition Network and the Iberian- mance of the AdC’s functions. American Competition Network. At a bilateral level, the AdC cooperates through technical coopera- In addition, in the case of a grounded suspicion that, in the domicile tion protocols and projects of mutual interest with other European and of shareholders, board members or employees, or of other workforces international competition authorities. of undertakings or associations of undertakings, evidence of infringe- ments to article 9 of the Act or to article 101 TFEU may be found, the AdC Interplay between jurisdictions may, upon a decision by the competent judge issued upon a substanti- 14 Which jurisdictions have significant interplay with your ated application by the AdC, carry out searches in such domiciles. A jurisdiction in cross-border cases? If so, how does this affect search in an inhabited house, or in a locked part thereof, may only be the investigation, prosecution and penalising of cartel activity carried out from 7am to 9pm, otherwise it being null and void. Searches in cross-border cases in your jurisdiction? in the office of an attorney-at-law or doctor may only be carried out in the presence of a judge, who shall previously inform the chair of the According to the AdC’s public records, within the framework of Council local attorneys’ bar or doctors’ association, as applicable, so that he or Regulation No. 1/2003, in 2004 one case was referred to the AdC within she, or a delegate thereof, may be present. These rules apply, mutatis the ECN (see the AdC’s 2004 Activity Report, page 25). mutandis, to searches elsewhere, including vehicles of shareholders, board members or employees, or of other workforces of undertakings CARTEL PROCEEDINGS or associations of undertakings. Seizure of documents must be authorised, ordered or confirmed by Decisions a decision of the judicial authority. Seizure of documents in the office of 15 How is a cartel proceeding adjudicated or determined? an attorney-at-law or doctor, which are subject to professional secrecy, is not permitted unless such documents are the object or an element of The Competition Authority (Autoridade da Concorrência – the AdC) both the infringement, otherwise being null and void. Seizure of documents investigates and adjudicates on cartel matters. After the investigation in a credit institution, which are subject to banking secrecy, is carried phase by the officials of the restrictive practices department, the final out by the competent judge when there are grounded reasons to believe decision is taken by the Council of the AdC (its decision-making body).

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Burden of proof indicate and submit the relevant evidence. The AdC shall further be 16 Which party has the burden of proof? What is the level of given the opportunity to bring to the hearing any elements deemed rele- proof required? vant for the decision and to have a representative participating in such hearing. Although the Court may in certain cases decide by means of a The burden of proof concerning accusations of anticompetitive behav- court order without a prior hearing, the AdC, the public prosecutor or iour rests with the AdC. However, exemptions must be proved by the the concerned undertaking may oppose such decision. The Court’s final alleging parties. As regards the level of proof at the end of the enquiry decision, as well as all decisions other than routine decisions that do phase, the decision to start the investigation phase is taken on the basis not involve the refusal or the recognition of any right, must be notified of a balance of probabilities; conversely, taking into account criminal to the AdC. The withdrawal of the case by the public prosecutor depends procedure principles, such as the in dubio pro reo principle, which on the AdC’s agreement. The AdC has standing to autonomously appeal apply to quasi-criminal minor offences by virtue of the general regime from the Court’s decisions (other than routine decisions). on quasi-criminal minor offences, the level of proof required for the Appeals of decisions of the Specialised Court that may be appealed final decision is the decision-maker comes to a conclusion without any are filed with the Appellate Court of Lisbon as a court of last resort. reasonable doubt. The duration of the appeal proceedings depends on the complexity of the cases and of the concerned courts’ workload. It may nevertheless Circumstantial evidence last longer than 12 months. 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement? SANCTIONS

Pursuant to article 31(4) of the Competition Act, Law No. 19/2012 of Criminal sanctions 8 May (the Act), the evidence will be assessed in accordance with the 19 What, if any, criminal sanctions are there for cartel activity? rules of experience and the free opinion of the AdC. In its guidelines for the investigation of cases relating to the application of articles 9, 11 The application of general criminal law can only derive from behaviour and 12 of the Act and 101 and 102 of the Treaty on the Functioning of also corresponding to a penal offence (eg, fraud, extortion, disturbance the European Union (TFEU), the AdC underlines such legal principles of public auction or tender), since there are no criminal sanctions for and invokes the rules of experience connected with social and economic competition law offences. Cartel activity per se is considered a minor relations that are the subject of the competition rules. quasi-criminal offence. According to the AdC, such rules of experience allow account to be taken of the specific aspects resulting from the nature and context of Civil and administrative sanctions the practices in question, in particular the difficulty of obtaining direct 20 What civil or administrative sanctions are there for cartel evidence in relation to certain infringements, such as concerted prac- activity? tices, and the need to consider circumstantial evidence. In relation to sanctions for quasi-criminal minor offences, under the Act, Appeal process fines can be imposed of up to 10 per cent of the corresponding turnover 18 What is the appeal process? in the year immediately preceding that of the final decision adopted by the AdC, for each of the infringing undertakings, or, in the case of asso- Law No. 46/2011 of 24 June determined the creation of a specialised ciations of undertakings, of the aggregated turnover of the associated court to handle competition, regulation and supervision matters (the undertakings: Specialised Court) to handle competition, regulation and supervision • for infringements of article 9 of the Act or article 101 the Treaty on matters, as of 30 March 2012. The Specialised Court is now the exclusive the Functioning of the European Union (TFEU); first instance for review of all the decisions adopted by the AdC. • for non-compliance with the conditions attached to the decision of Under the current regime, the AdC’s sanctioning decisions (typi- closing the case at the end of the investigation phase; cally involving anticompetitive agreements, decisions and practices, • for non-compliance with the behavioural or structural remedies abuses of economic power and infringements of the merger control imposed by the AdC; or rules) may be appealed to the Specialised Court under the rules estab- • for non-compliance with a decision ordering interim measures. lished in the Act and, on a subsidiary basis, under the quasi-criminal minor offences regime. The appeal shall not suspend the effects of the In cases where any of these infringements are carried out by individuals AdC’s decision, except for decisions that impose structural remedies as held responsible under the Act, the applicable fine cannot exceed 10 per established in the Act. cent of the corresponding remuneration in the last full calendar year in Appeals that refer to decisions applying fines or other penal- which the infringement took place. ties may suspend the enforcement of such decisions only if the party In addition, refusal to provide information or the provision of false, concerned requests it on the basis that enforcement would cause it inaccurate or incomplete information, or non-cooperation with the AdC, considerable harm and the party offers a guarantee, provided the guar- are subject to fines of up to 1 per cent of the corresponding turnover antee is submitted within the time limit set by the court. The Specialised in the year immediately preceding that of the final decision adopted by Court shall have full jurisdiction in the case of appeals lodged against the AdC for each of the infringing undertakings, or, in the case of asso- decisions imposing a fine or a periodic penalty payment and can reduce ciations of undertakings, of the aggregated turnover of the associated or increase the corresponding amounts. undertakings. In cases where any of these infringements are carried An appeal of the AdC’s final decision condemning the concerned out by individuals held responsible under the Act, the applicable fine undertaking must be lodged within a non-extendable deadline of 30 ranges from 10 to 50 ‘account units’ (each ‘account unit’ currently working days. The AdC has a deadline of 30 working days, which also amounts to €102). cannot be extended, to forward the file to the public prosecutor. The Furthermore, the absence of a complainant, of a witness or of an AdC may attach to the file written conclusions, together with elements expert to a duly notified procedural act is punishable with a fine ranging or information it deems relevant for the Court’s decision, and shall also from two to 10 account units. www.lexology.com/gtdt 187 © Law Business Research 2020 Portugal Gómez-Acebo & Pombo

Multiple infringements are punished with a fine, the maximum rather at providing information necessary for the understanding of the limit of which is the sum of the fines applicable to each infringement. methodology followed by the AdC in fixing such fines. However, the total fine cannot exceed double of the higher limit of the According to the AdC’s public decision record, which appears on fines applicable to the infringements in question. the AdC’s website and only includes definitive decisions (ie, decisions Additionally, should the infringement be considered sufficiently that were not subject to judicial review or were subject to appeal and serious, the AdC can impose, as ancillary sanctions: the final judicial decision has already been adopted), and in cases • the publication, at the offender’s expense, of an extract of the where the AdC has determined that an infringement occurred, the AdC sanctioning decision in the official gazette of Portugal and in a has imposed fines except in those cases where it has exempted the Portuguese newspaper with national, regional or local coverage, concerned undertakings from the fines pursuant to the application of depending on the relevant geographical market; or the leniency regime. • in cases of competition law infringements carried out during, or due to, public procurement proceedings, the prohibition, for a maximum Guidelines for sanction levels of two years, from participating in proceedings for entering into 21 Do fining or sentencing principles or guidelines exist? If yes, public works contracts, for concessions of public works or public are they binding on the adjudicator? If no, how are penalty services, for the lease or acquisition of goods or services by the levels normally established? What are the main aggravating state, or for the granting of public licences or authorisations. and mitigating factors that are considered?

The AdC may further impose periodic penalty payments of up to 5 per Under the Act, the following circumstances may be considered relevant cent of the average daily turnover in Portugal in the year immediately for setting the amount of the fines: preceding that of the final decision, per day of delay counted from the • the seriousness of the infringement in terms of affecting effective date established in the notification, where the undertakings do not competition in the Portuguese market; comply with an AdC decision imposing a sanction or ordering the adop- • the nature and size of the market affected by the infringement; tion of certain measures. • the duration of the infringement; Individuals, legal persons (regardless of the regularity of their • the level of participation in the infringement by the concerned incorporation), companies and associations without legal personality undertakings; may be held liable for offences under the Act. • the advantages that the offending concerned undertakings have Legal persons and equivalent entities are liable when the acts are enjoyed as a result of the infringement, if possible to determine; carried out: • the behaviour of the concerned undertakings in putting an end • on their behalf, on their account by persons holding leading posi- to the restrictive practices and in repairing the damages caused tions (eg, the members of the corporate bodies and representatives to competition, notably through the payment of compensation to of the legal entity); or those injured following an out-of-court agreement; • by individuals acting under the authority of such persons by virtue • the economic situation of the concerned undertakings; of the violation of surveillance or control duties. Merger, demerger • records of previous competition infringements carried out by the or transformation of the legal entity does not extinguish its liability. concerned undertakings; and • cooperation with the AdC until the close of the administrative The members of the board of directors of the legal entities, as well as proceedings. the individuals responsible for the direction or surveillance of the area of activity in which an infringement is carried out, are also liable when: Consideration of the above circumstances is mandatory for the AdC. • holding leading positions, they act on behalf or on the account of However, the absence of a hierarchy and the consideration of circum- the legal entity; or stances not listed above leave room for discretion. • knowing, or having the obligation to know, the infringement, they Furthermore, as stated above, on 20 December 2012 the AdC do not adopt the measures required to put an end to it, unless a published guidelines regarding the methodology to be used in the appli- more serious sanction may be imposed by other legal provision. cation of fines.

Undertakings, with representatives which were, at the time of the Compliance programmes infringement, members of the directive bodies of an association that is 22 Are sanctions reduced if the organisation had a compliance subject to a fine or a periodic penalty payment, are jointly and severally programme in place at the time of the infringement? responsible for paying the fine unless they have expressed in writing their opposition to the infringement. There is no legal rule nor express indication from the AdC recognising In relation to civil sanctions, anticompetitive agreements, deci- the existence of a compliance programme as a direct motive for sanc- sions and practices are considered null and void (except where they tion reductions. We are not aware of any decisions in which the AdC has are considered justified), and civil liability may also arise for the explicitly taken into account the pre-existence or the commencement of damage caused. compliance programmes in determining the level of the fine. The calculation of the above-mentioned fines must follow the mandatory criteria established in the Act. In addition, on 20 December Director disqualification 2012, the AdC published guidelines regarding the methodology to be 23 Are individuals involved in cartel activity subject to orders used in the application of fines. In drafting these guidelines, the AdC prohibiting them from serving as corporate directors or took into consideration the European Commission’s guidelines on officers? the method of setting fines imposed pursuant to article 23(2)(a) of Regulation No. 1/2003. The AdC’s guidelines only apply to cases in Directors’ disqualification is not ruled in the Act. According to our knowl- which the inquiry phase was initiated after the Act came into force. edge, there is no record of orders from the AdC prohibiting individuals Furthermore, the AdC states in the guidelines that they are not aimed involved in cartel activity from serving as corporate bodies or officers. at allowing for the prior calculation of the actual fines to be applied but

188 Cartel Regulation 2021 © Law Business Research 2020 Gómez-Acebo & Pombo Portugal

Debarment • the defendant acquired the goods or services affected by the 24 Is debarment from government procurement procedures infringement, goods or services derived from the goods or services automatic, available as a discretionary sanction, or not affected by the infringement or that contain them. available in response to cartel infringements? A novelty resulting from the new damages actions regime is the In the case of competition law infringements carried out during, or due presumption that the cartels are responsible for damages caused by to, public procurement proceedings, the AdC can impose, as an ancillary the infringements that they practise unless proven otherwise. According sanction, a prohibition, for a maximum of two years, from participating to the Damages Act, if it is practically impossible or excessively difficult in proceedings for entering into public works contracts, for conces- to calculate accurately the total damage suffered by the injured person sions of public works or public services, for the lease or acquisition of or the value of the repercussions, taking into account the available goods or services by the state, or for the granting of public licences or evidence, the court shall calculate it with recourse to the Commission authorisations. Communication (2013/C 167/07) of 13 June 2013 on the quantification of damages in actions for damages on the grounds of infringements of Parallel proceedings articles 101 and 102 of the Treaty on the Functioning of the European 25 Where possible sanctions for cartel activity include criminal Union. Moreover, the Competition Authority shall assist the court, at the and civil or administrative penalties, can they be pursued latter’s request, in quantifying damages resulting from an infringement in respect of the same conduct? If not, when and how is the of competition law, and may request the court to provide a reasoned choice of which sanction to pursue made? exemption from providing such assistance.

Cartel activity per se is considered a quasi-criminal minor offence and Class actions does not involve the application of criminal sanctions, without prejudice 27 Are class actions possible? If so, what is the process for such to the application of general criminal law if the behaviour in question cases? If not, what is the scope for representative or group also corresponds to a specific criminal offence. actions and what is the process for such cases?

PRIVATE RIGHTS OF ACTION Class actions, whereby individual litigants or associations may, under certain conditions, sue as representatives of injured parties, were Private damage claims already provided for in Law No. 83/95 of 31 August and article 31 of the 26 Are private damage claims available for direct and indirect Code of Civil Procedure, being applicable to competition law injuries. purchasers? Do purchasers that acquired the affected The Damages Act restated the application of the said regime and added product from non-cartel members also have the ability to some rules in this respect. The process is now governed by ordinary bring claims based on alleged parallel increases in the civil procedure rules and by the Damages Act itself. In addition to the prices they paid (‘umbrella purchaser claims’)? What level of entities mentioned in Law 83/95, of 31 August, the following now have damages and cost awards can be recovered? standing to bring actions for compensation for infringements of compe- tition law: Before the entry into force of the Private Damages Act (4 August 2018), • associations and foundations for the protection of consumers; and third-party claims for damages were dealt with under the general prin- • associations of undertakings whose members are adversely ciples and provisions applicable to civil liability as provided for in the affected by the infringement of the competition law in question, Civil Code. The standard liability requirements are the existence of an even if their statutory objectives do not include the defence of illicit act (the anticompetitive behaviour), injury to the claimant and a competition. causal link between the two. With the implementation of the EU Private Enforcement Directive From the public records and from our experience, class actions are not through the Damages Act, those standard liability requests do not a very popular nor frequently chosen course of action in Portugal, and change. Also, the purpose of this liability is still merely to repair damage only one case involves competition law is known, which is from 2015. (ie, to restore the situation that would have existed if the event that In this case, the Portuguese court gave consumers the possibility to determines the need for the reparation had not occurred). The amount opt-out in September 2019. of compensation shall be measured by the difference between the actual patrimonial situation of the damaged party and the patrimonial situation COOPERATING PARTIES of such party that would exist if the damage had not taken place. This includes not only the amount of the damage caused by the illicit conduct Immunity but also interest and the amount of any benefits that the damaged party 28 Is there an immunity programme? If so, what are the basic could not obtain due to the illicit action. elements of the programme? What is the importance of being Any injured party has individual standing. ‘first in’ to cooperate? In actions for damages whose request is based on the repercus- sion of the additional costs on an indirect customer, the latter has the Competition Act, Law No. 19/2012 of 8 May (the Act) establishes the burden of proof of the existence and of the scope of such repercussion. leniency rules in article 75 et seq In addition, Competition Authority However, unless evidence is provided to the contrary, it is presumed (Autoridade da Concorrência – the AdC) has adopted Regulation No. that the additional costs were passed on to the indirect customer, when- 1/2013 of 3 January 2013, which sets out the leniency administrative ever this shows that: procedure. • the defendant had committed an infringement of competition law; Under the Act, the AdC can grant immunity or reduction of fines • this infringement had an additional cost for the direct client of the in procedures for quasi-criminal minor offences that concern agree- defendant; and ments and concerted practices between competitors prohibited by article 9 of the Act and (where applicable) article 101 of the Treaty on the Functioning of the European Union (TFEU), which are aimed at www.lexology.com/gtdt 189 © Law Business Research 2020 Portugal Gómez-Acebo & Pombo

coordinating the competitive behaviour of the undertakings or at influ- • a reduction from 20 to 30 per cent granted to the second under- encing relevant competitive conditions. taking that provides information and evidence; or To obtain full immunity, an applicant must: • a reduction of up to 20 per cent granted to the subsequent under- • be the first undertaking to inform the AdC of its participation in an takings that provide information and evidence. agreement or a concerted practice, as long as it provides infor- mation and evidence that, in the AdC’s discretion, enables the In fixing the fine, the AdC shall take into account the order of submis- regulator: sion of the information and evidence, as well as their added value for • to substantiate a request for searches or seizure of data, the investigation. If a leniency application is submitted after the noti- provided that the AdC, at the time the information and fication of the statement of objections the above reduction limits are evidence are submitted, does not have sufficient elements to reduced by half. perform such acts; or There is currently no ‘immunity plus’ or ‘amnesty plus’ option. • to establish the existence of an infringement, provided that, at that moment, the AdC does not have sufficient evidence of the Approaching the authorities infringement available; 31 Are there deadlines for initiating or completing an application • cooperate fully and continuously with the AdC from the for immunity or partial leniency? Are markers available and moment of the initial request by: what are the time limits and conditions applicable to them? • providing all data and evidence already obtained or to be obtained in the future; There is no specific deadline for immunity or partial leniency applica- • responding immediately to any request for information; tions, but an undertaking that wishes to take advantage of the leniency • avoiding acts that may endanger the investigation; and programme should approach the AdC as early as possible. It is possible • not informing the other participants in the concerted practice; to obtain a marker securing the applicant's position in relation to other • put an end to its participation in the infringement before it provides possible applicants. Upon receipt of a written or oral application for the AdC with the information and evidence, except as reasonably immunity or reduction of a fine, the AdC may, on its own initiative or required, in the AdC’s opinion, to preserve the investigation effec- upon reasoned request, grant a marker to the applicant establishing a tiveness; and period of up to 15 days for the applicant to complete their application. • not have coerced other undertakings to participate in the breach. Cooperation The information and evidence to be provided must contain complete and 32 What is the nature, level and timing of cooperation that precise information on: is required or expected from an immunity applicant? Is • the agreement or concerted practice; there any difference in the requirements or expectations • the undertakings involved, including the objectives, activity and for subsequent cooperating parties that are seeking partial ways of operation; leniency? • the product or service concerned; and • the geographical scope, the duration and the manner in which the An equivalent level of cooperation applies to all leniency applicants breach has been carried out. and they must cooperate fully and continuously with the AdC from the moment of the initial request notably by: Subsequent cooperating parties • providing all data and evidence already obtained or to be obtained 29 Is there a formal programme providing partial leniency for in the future; parties that cooperate after an immunity application has been • responding immediately to any request for information; made? If so, what are the basic elements of the programme? • avoiding acts that may endanger the investigation; and If not, to what extent can subsequent cooperating parties • not informing the other participants in the concerted practice. expect to receive favourable treatment? The applicants must also put an end to their participation in the infringe- Under the leniency rules set forth in the Act, the AdC can grant immunity ment, except as reasonably required, in the AdC’s opinion, to preserve to or a reduction of fines. the investigation effectiveness. The AdC shall grant a reduction of fines to undertakings which, not being eligible to immunity, submit information and evidence that Confidentiality adds significant value to those already in the possession of the AdC and 33 What confidentiality protection is afforded to the immunity provided the conditions are met regarding cooperation with the AdC and applicant? Is the same level of confidentiality protection putting an end to the infringement. applicable to subsequent cooperating parties? What information will become public during the proceedings and Going in second when? 30 How is the second cooperating party treated? Is there an ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, The AdC shall classify as confidential the leniency application as well as how does it operate? the documents and information provided by the applicant. The rules apply to both full (immunity) and partial (reduction of As regards full immunity, only the first undertaking to provide informa- fines) leniency. tion and evidence may obtain full immunity from fines. For the purpose of preparing the observations in response to the Concerning the reduction of the fine, the corresponding level of statement of objections, a concerned undertaking shall be granted reduction is determined by the AdC as follows: access to the leniency application and to the related documents and • a reduction from 30 to 50 per cent granted to the first undertaking information by the AdC. However, the concerned undertaking shall not that provides information and evidence; be allowed to make copies of such elements unless authorised by the leniency applicant. Third parties’ access to the leniency application

190 Cartel Regulation 2021 © Law Business Research 2020 Gómez-Acebo & Pombo Portugal and to the related documents and information shall require the leni- • identification of other jurisdictions where a leniency application has ency applicant’s consent, without prejudice of the right of access under been filed in respect of the same infringement; and the terms established in the Damages Act. The Damages Act has intro- • other information deemed relevant for the request for immunity or duced amendments to the Act in respect of confidentiality applicable to reduction of the fine. leniency applications. In any event, leniency statements (regarding an exemption from or reduction of the fine) are protected. Together with the leniency application, the applicant shall submit all the The concerned undertaking shall not be granted access to copies evidence in its possession or under its control. of its oral statements and third parties shall have no access to them. The leniency application must be submitted at the AdC’s head office by any means, notably: Settlements • fax (to +351 21 790 20 93/30); 34 Does the investigating or prosecuting authority have the • postal mail addressed to the AdC’s head office; ability to enter into a plea bargain, settlement, deferred • email sent to the address [email protected] with an elec- prosecution agreement (or non-prosecution agreement) or tronic signature; or other binding resolution with a party to resolve liability and • hand delivery, notably in a meeting with the AdC’s services in penalty for alleged cartel activity? What, if any, judicial or charge of the investigation. other oversight applies to such settlements? Submission of a written application can be replaced by oral statements Under the Portuguese leniency regime, the AdC is not granted the made in a meeting with the AdC’s services in charge of the investiga- power to enter into arrangements such as plea bargains or similar tion. Such statements shall be accompanied by all the evidence in the agreements. Settlements are permitted under the terms described possession of or under the control of the applicant. The statements above, and a reduction in fine granted in leniency proceedings is added shall be recorded in the AdC’s head office with an indication of their to the reduction granted in the settlement proceedings. In its most time and date. Within the time frame established by the AdC, the appli- recent cartel decisions, the AdC, in determining the amount of the cant confirms the technical accuracy of the recording and, if necessary, fines, took into account the cooperation of the companies during the corrects the statements. In the absence of any comment from the investigation through the use of both the leniency regime and the settle- applicant, the recording is considered approved by the applicant. The ment proceedings. The facts confessed by a concerned undertaking transcription of the statements must be complete and accurate and in a settlement procedure cannot be subject to judicial review for the shall be signed by the applicant. purposes of any appeal. The request for immunity or reduction of fine shall be deemed made on the date and at the time of its receipt at the AdC’s head office. Corporate defendant and employees The AdC shall provide a document confirming receipt of the application 35 When immunity or partial leniency is granted to a corporate and the date and hour of its submission. defendant, how will its current and former employees be In special cases and upon a reasoned request, the AdC may treated? accept a simplified leniency application if the applicant has filed, or is filing, a leniency application with the European Commission and the Individuals and employees of an undertaking who are responsible for Commission is in the situation provided for in the Commission Notice the direction or surveillance of the area of activity in which an infringe- on cooperation within the network of competition authorities (2004/C ment occurred, may be granted immunity or reduction of fines if they 101/03). The application shall, in these cases, be made in Portuguese fully and continuously cooperate with the AdC, even if they have not or English according to the form attached to Regulation No. 1/2013 requested such benefits. or by oral statements. The AdC shall provide a document confirming the receipt of the simplified application and the date and hour of its Dealing with the enforcement agency submission. If the AdC starts an investigation of the infringement, it 36 What are the practical steps for an immunity applicant shall request that the applicant completes the application within a time or subsequent cooperating party in dealing with the frame of at least 15 days, which, if applicable, shall include a Portuguese enforcement agency? translation of a simplified application filed in English. If the application is not completed or the Portuguese translation is not filed within the Regulation No. 1/2013 sets out the leniency administrative procedure. established deadline, the application shall be refused. If an application Under Regulation No. 1/2013, a leniency request is made by means is filed only for the purposes of immunity and this latter is no longer of an application addressed to the AdC and must include: available, the AdC shall inform the applicant that the application may be • the object of the application, specifying whether it is a request for withdrawn or completed for the purposes of reduction of the fine. If the immunity or for a reduction in fine, or both; applicant completes the application within the established deadline, the • the identification of the applicant, the capacity in which the appli- request shall be deemed to have been made on the date and hour the cation is filed (ie, a company or the members of its board of application was initially filed. directors or equivalent entities, or the individuals responsible for Upon receipt of a written or oral application for immunity or reduc- the management or supervision of the sector of activity concerned tion of fine, the AdC may, on its own initiative or upon reasoned request, in the infringement) and the corresponding contacts; grant a marker to the applicant establishing a period of at least 15 days • legal entities must include the identification of the current members for the completion of the application by the applicant. To benefit from the of the board of directors, as well as of the members of such board marker, the applicant must indicate in the application: during the duration of the infringement; • its name and address; • detailed information on the alleged cartel; • information on the alleged cartel, and on the products, services and • the identification and contact details of the undertakings involved territory affected; in the alleged cartel, as well as of the current members of their • an estimate of the duration of the alleged cartel; boards of directors and of the members of such boards during the duration of the infringement; www.lexology.com/gtdt 191 © Law Business Research 2020 Portugal Gómez-Acebo & Pombo

• whether other applications for immunity or reduction of fines have Multiple corporate defendants been filed or are planned to be filed with other competition authori- 39 May counsel represent multiple corporate defendants? Does ties regarding the alleged cartel; and it depend on whether they are affiliated? • the justification for the marker. The representation by counsel of multiple corporate defendants may be If the applicant completes the application within the established dead- acceptable to the extent it does not raise any conflicts of interest under line, the request shall be deemed to have been made on the date and article 99 of the Portuguese Bar Association Legal Regime. hour the application was initially filed. If the application is not completed, the application shall be refused. Following an analysis of the application, Payment of penalties and legal costs the AdC shall notify the applicant if it considers that the requirements 40 May a corporation pay the legal penalties imposed on its for immunity are not met, in which case the applicant may, within 10 employees and their legal costs? days of such notification, withdraw the application or request the AdC that this latter is considered for the purposes of reduction of the fine. In principle, nothing seems to prevent a corporation from voluntarily As regards an application for reduction of a fine, if the AdC considers, paying the costs or penalties (or both) imposed on its employees, or on a preliminary basis, that the information and evidence submitted by from reimbursing employees for such costs or penalties. the applicant add significant value to that already in its possession, it shall inform the applicant of its intention to grant a reduction of the Taxes fine, indicating the level of the applicable reduction. The aforementioned 41 Are fines or other penalties tax-deductible? Are private rules governing the application for immunity or reduction of fine apply. damages payments tax-deductible? If the AdC considers, on a preliminary basis, that the information and evidence submitted by the applicant do not add significant value to Fines or other penalties and private damages awards are not those already in its possession, it shall notify the applicant, in which tax-deductible. case this latter may, within 10 days of such notification, withdraw the application. International double jeopardy Immunity or reduction of fines shall only be granted if all the 42 Do the sanctions imposed on corporations or individuals take requirements set forth in the Act are fulfilled. The final decision on into account any penalties imposed in other jurisdictions? In immunity or reduction of fines shall be taken in the final decision of the private damage claims, is overlapping liability for damages in procedure adopted by the AdC at the end of the investigation. other jurisdictions taken into account?

DEFENDING A CASE The ne bis in idem principle, which is essentially the equivalent of the double jeopardy principle, applies in the framework of quasi-criminal Disclosure minor offences and therefore applies to cartel infringements. However, 37 What information or evidence is disclosed to a defendant by in applying the principle, the AdC shall take into account whether the the enforcement authorities? infringement previously sanctioned is the same as that subject to its assessment, in terms of both the specific behaviour in question and the The defendant can request the consultation of the case file and territory where it occurred or had an effect. obtain, at his or her own expense, any extracts, copies or certificates. As regards liability for private damage claims, the overlapping Nevertheless, the Competition Authority (Autoridade da Concorrência liability for damages shall be taken into account, notably in the deter- – the AdC) can refuse access to the file until the notification of the state- mination of the actual amount of damages that may be claimed in the ment of objections in cases where the proceedings are subject to secrecy Portuguese jurisdiction. and whenever it considers that such access may harm the investigation. The AdC shall have due care for the legitimate interests of the under- Getting the fine down takings, or associations of undertakings, or of other entities, relating to 43 What is the optimal way in which to get the fine down? non-disclosure of their business secrets. To respond to the statement of objections, the defendant may also have access to the application for Timely leniency applications and thorough colaboration with the AdC immunity from the fine or reduction of the fine, and to the documents as well as the settlement proceedings may avoid or reduce the amount and information submitted for the purpose of immunity or reduction, of the fine. In addition, the behaviour of the undertaking concerned in though no copy can be made unless authorised by the applicant. putting an end to the restrictive practices and in repairing the damage caused to competition may be taken into account in the determina- Representing employees tion of the amount of the fine. We are not aware of any decisions in 38 May counsel represent employees under investigation in which the AdC has explicitly taken into account the pre-existence or the addition to the corporation that employs them? When should commencement of compliance programmes in determining the level a present or past employee be advised to obtain independent of the fine. legal advice or representation? UPDATE AND TRENDS Employees can be interviewed or requested to provide information or documents relevant to an investigation by the AdC. In such cases, joint Recent cases representation of a corporation and employees by the same counsel 44 What were the key cases, judgments and other developments may constitute a conflict of interest under article 99 of the Portuguese of the past year? Bar Association Legal Regime. The Competition Authority (AdC), which completed 16 years of existence in 2019, continues very active.

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In November 2019, the AdC reported that it had carried out dawn raids in five premises of five undertakings in the private surveillance sector. In the same statement, the AdC underlined that since the begin- ning of 2017 it had carried out search and seizure operations in 22 investigations, corresponding to 56 facilities, in several sectors. Then in December 2019, the AdC issued a Statement of Objections (SO) to two telecommunications companies, regarding a possible cartel for market sharing and price fixing of mobile services, sold separately or in packages of fixed and mobile telecommunications services. The Mário Marques Mendes same two telecommunications companies, together with another two, [email protected] are involved in a second investigation with respect to a cartel agree- Alexandra Dias Henriques ment to limit competition in advertising on the Google search engine, [email protected] which the AdC issue a corresponding SO on in July 2020. According to the AdC, both investigations started following complaints submitted Avenida Duque de Ávila, No. 46, 6º under its leniency programme. 1050-083 Lisbon In June and July 2020, respectively, the AdC sent SOs to three large Portugal food retail groups and a supplier of pre-packaged bread and substitutes Tel: +351 21 340 86 00 and cakes, for price fixing, as well as SOs to six large food retail chain Fax: +351 21 340 86 08 groups and two suppliers (one of non-alcoholic beverages and juices www.ga-p.com and the other of wine and alcoholic drinks), for price fixing. According to the AdC, these are part of a large group of alleged ‘hub-and-spoke’ cases investigated in Portugal involving retailers and suppliers. Again in July 2020, another SO was issued by the AdC regarding practices that could exploit the current situation, to the detriment of a non-competition agreement entered into by six waste management people and the economy (eg, colluding on pricing or market sharing). companies. The AdC said that any person or company could report suspected anti- As for final decisions, in March 2020 the AdC announced that it had competitive practices electronically using the AdC Complaints Portal adopted a sanctioning decision which concluded proceedings against and underlined that it was also in permanent coordination with sectoral railway maintenance companies and board members involved in a regulators and public entities, with a view to proactively detecting cartel, with a total fine of €3.4 million and the disqualification of partici- competition problems that could aggravate the situation of society. pation in public tenders. It was the first time that the AdC applied this Meanwhile, as a member of the European Competition Network ancillary sanction, disqualifying two of the involved companies, which (ECN) and through Notice 5/20, of 23 March 2020, the AdC joined its did not use the settlement procedure, from participating in certain European counterparts in the simultaneous disclosure of the joint contracting procedures for a period of two years. declaration on the application of competition rules during the covid-19 Finally, on 30 September 2020 the specialised court created to crisis (the Declaration). handle competition, regulation and supervision matters upheld the The Declaration emphasises that the current extraordinary situation AdC’s decision from 2017 in which the authority imposed a fine of €38.3 may require cooperation between companies in order that consumers million on two operators for entering into a non-competition agree- are guaranteed fair distribution of products of limited availability. ment, but reduced the penalty to €34.4 million. The court acknowledged The AdC and its counterparts said that, in the current circum- the existence of the agreement and the involvement of both parent stances, they would not actively intervene against necessary and companies. temporary measures that were implemented in order to prevent the scarcity of supply, clarifying that such measures are unlikely to consti- Regime reviews and modifications tute a problem, as they would not entail a restriction of competition or 45 Are there any ongoing or anticipated reviews or proposed would generate efficiency gains that would most likely outweigh any changes to the legal framework, the immunity/leniency restriction. Companies were invited to contact the AdC at any time for programmes or other elements of the regime? informal guidance if they had doubts about the compatibility of such cooperation with competition law. The Competition Act, Law No. 19/2012 of 8 May (the Act) is expected to At the same time, ECN competition authorities stressed that they be amended along with the transposition of the Empowering National would not hesitate to act against companies that take advantage of Competition Authorities Directive (EU) No. 2019/1 (ECN+ Directive), current circumstances, notably through cartelisation. which aims to give the member states’ competition authorities the power to apply the law more effectively and to ensure the proper func- tioning of the European internal market.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

In its first public statement after the start of the pandemic, issued on 16 March 2020 (Notice 3/2020), the AdC ensured that it was particu- larly vigilant in the mission of detecting any abuses or anticompetitive www.lexology.com/gtdt 193 © Law Business Research 2020 Singapore

Lim Chong Kin and Corinne Chew Drew & Napier LLC

LEGISLATION AND INSTITUTIONS • information sharing between competing hotels in relation to the provision of hotel room accommodation to corporate customers In Relevant legislation Singapore, 30 January 2019; and 1 What is the relevant legislation? • bid rigging in the provision of construction and maintenance services for Wildlife Reserves Singapore, 4 June 2020. Competition law in Singapore is governed by the Singapore Competition Act (Cap 50B) (the Act). Cartel activities are prohibited by section 34 of Relevant institutions the Act (the section 34 prohibition), which provides that: 2 Which authority investigates cartel matters? Is there a separate prosecution authority? Are cartel matters [Agreements] between undertakings, decisions by associations of adjudicated or determined by the enforcement agency, a undertakings or concerted practices which have as their object separate tribunal or the courts? or effect the prevention, restriction or distortion of competition within Singapore are prohibited. The Competition and Consumer Commission of Singapore (CCCS), a statutory body established under Part II of the Act, is the agency respon- The section 34 prohibition became effective on 1 January 2006, and sible for enforcing the Act and investigating cartel matters. Previously since its introduction, the following infringement decisions in respect of known as the Competition Commission of Singapore (CCS), the CCS was the prohibition have been issued: renamed the CCCS and took on the additional function of administering • bid rigging in the provision of termite control services in Singapore, the Consumer Protection (Fair Trading) Act (Cap 52A) with effect from 9 January 2008 (the Pest-Busters case); 1 April 2018. • price-fixing in the provision of coach tickets for travelling between Cartel matters are adjudicated by the CCCS, but its decisions can Singapore and destinations in Malaysia, 3 November 2009 (the be appealed to the Competition Appeal Board (CAB). A decision of the Express Bus case); CAB can subsequently be appealed to the High Court on a point of law • bid rigging in electrical and building works, 4 June 2010 (the arising from the decision, or from any decision as to the amount of a Electrical Works case); financial penalty. • price-fixing of monthly salaries of new Indonesian foreign domestic workers in Singapore, 30 September 2011 (the Domestic Changes Workers case); 3 Have there been any recent changes, or proposals for change, • price-fixing of modelling services in Singapore, 23 November 2011 to the regime? (the Modelling Services case); • information sharing in the provision of ferry services between On 10 September 2020, the CCCS announced that it was seeking public Batam and Singapore, 18 July 2012 (the Ferry Services case); feedback on proposed changes to the CCCS Guidelines on Market • bid rigging by motor vehicle traders at public auctions, 28 March Definition (Market Definition Guidelines), among other items, after 2013 (the Motor Vehicle Traders case); conducting a review of its Guidelines on the Act. The proposed changes • price-fixing of ball and roller bearings sold to aftermarket to the Market Definition Guidelines seeks to provide greater clarity on customers, 27 May 2014 (the Ball Bearings case); issues related to market definition that may be relevant in the digital era. • infringement of the section 34 prohibition in relation to the provi- sion of air freight forwarding services for shipments from Japan to Substantive law Singapore, 11 December 2014 (the Freight Forwarding case); 4 What is the substantive law on cartels in the jurisdiction? • infringement of the section 34 prohibition in relation to the distri- bution of life insurance products in Singapore, 17 March 2016 (the Section 34 of the Act prohibits ‘agreements, decisions by associa- Financial Advisers case); tions of undertakings, and concerted practices’, which have as their • bid rigging in the provision of electrical services and asset tagging ‘object or effect’ the ‘prevention, restriction or distortion’ of competi- tenders, 28 November 2017 (the Electrical Services case); tion in Singapore. Specifically, section 34(2) provides that agreements, • infringement of the section 34 prohibition in relation to the market decisions or concerted practices may, in particular, have the object for the sale, distribution and pricing of aluminium electrolytic or effect of preventing, restricting or distorting competition within capacitors in Singapore, 5 January 2018 (the Capacitors case); Singapore if they: • infringement of the section 34 prohibition in relation to the fresh • directly or indirectly fix purchase or selling prices or any other chicken distribution industry, 12 September 2018; trading conditions;

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• limit or control production, markets, technical development or APPLICATION OF THE LAW AND JURISDICTIONAL REACH investment; • share markets or sources of supply; Application of the law • apply dissimilar conditions to equivalent transactions with other 6 Does the law apply to individuals, corporations and other trading parties, thereby placing them at a competitive disad- entities? vantage; or • make the conclusion of contracts subject to acceptance by the The prohibition on activities contained in section 34 Singapore other parties of supplementary obligations that, by their nature Competition Act (Cap 50B) (the Act) (the section 34 prohibition) applies or according to commercial usage, have no connection with the in respect of ‘undertakings’, which is defined in section 2 of the Act as subject of the contracts. ‘any person, being an individual, a body corporate, an unincorporated body of persons or any other entity, capable of carrying on commercial The illustrative list in section 34(2) is not intended to be exhaustive, and or economic activities relating to goods or services’. Where employees the CCCS has specified in its Guidelines on the Section 34 Prohibition engage in conduct that would be contrary to the section 34 prohibition, 2016 (Section 34 Guidelines) that many other types of arrangements liability would be imputed to, and assessed in respect of, the employing may have the effect of preventing, restricting or distorting competi- undertaking. tion (including, among other things, information-sharing agreements in some circumstances). Extraterritoriality The CCCS has also stated that agreements, decisions and concerted 7 Does the regime apply to conduct that takes place outside the practices will fall within the ambit of the section 34 prohibition only jurisdiction (including indirect sales into the jurisdiction)? If where they have an ‘appreciable’ effect on competition. The Section 34 so, on what jurisdictional basis? Guidelines, paragraphs 2.21 to 2.28, provide further details on when an arrangement might give rise to an appreciable effect on competition. Yes. Section 33 of the Act specifically states that conduct that takes Arrangements involving price-fixing, bid rigging, market sharing or place outside Singapore will also be prohibited by the section 34 prohi- output limitation will always be considered, by their very nature, to have bition if it has the object or effect of preventing, restricting or distorting an appreciable effect on competition such that it is not necessary for the competition within Singapore. More specifically, section 33 of the Act CCCS to proceed to analyse the actual effects of such arrangements. specifies that section 34 of the Act may apply notwithstanding that: One important qualification on the application of the section 34 • an agreement referred to in section 34 has been entered into prohibition is that it does not apply to arrangements that give rise to net outside Singapore; economic benefit (an exclusion that is provided for at paragraph 9 of the • any party to such agreement is outside Singapore; or Third Schedule to the Act). To qualify for the exclusion, it must be shown • any other matter, practice or action arising out of such agreement that the arrangement: is outside Singapore. • contributes to improving production or distribution, or promoting technical or economic progress; and To date, the CCCS has issued infringement decisions in respect of • does not: three international cartels, namely the Ball Bearings case, the Freight • impose on the undertakings concerned restrictions that are Forwarding case and the Capacitors case. In all three cases, the not indispensable to the attainment of those objectives; or Japanese parent companies engaged in conduct in Japan that had an • afford the undertakings concerned the possibility of elimi- anticompetitive effect within a Singapore market. nating competition in respect of a substantial part of the goods or services in question. Export cartels 8 Is there an exemption or defence for conduct that only affects In determining whether an agreement has the object of preventing, customers or other parties outside the jurisdiction? restricting or distorting competition, the CCCS is not concerned with the subjective intention of the parties when entering into an agreement. To the extent that the conduct has the object or effect of preventing, Instead, it will determine if the section 34 prohibition has been breached restricting or distorting competition within Singapore, there is no appli- based on the content and objective aims of the agreement considered cable exemption or defence from the section 34 prohibition on the in the economic context in which it is to be applied. The CCCS will also grounds that the conduct affects only customers or other parties outside consider the actual conduct and behaviour of the parties in the rele- the jurisdiction. However, the section 34 prohibition will not apply if such vant market. conduct does not have as its object or effect the prevention, restriction or distortion of competition within Singapore. Joint ventures and strategic alliances 5 To what extent are joint ventures and strategic alliances Industry-specific provisions potentially subject to the cartel laws? 9 Are there any industry-specific infringements? Are there any industry-specific defences or exemptions? Whether a joint venture would be subject to cartel laws depends on, among other things, the function that the joint venture performs. Section Certain liner shipping agreements are exempted from the application 54(5) of the Act provides that the creation of a joint venture to perform, of the section 34 prohibition by way of a block exemption order (BEO). on a lasting basis, all the functions of an autonomous economic entity, The BEO initially took effect on 1 July 2006 for a period of five years, constitutes a merger and would thus fall within the merger provisions and its first extension until 2015 was granted by the Minister for Trade of the Act. and Industry on 16 December 2010 and second extension until 2020 was However, a joint venture would not be considered a merger and granted by the Minister on 25 November 2015. On 26 August 2020, the would likely be subject to the section 34 prohibition if it merely under- Minister extended the BEO for one year until 31 December 2021. The takes a specific function of its parent companies’ business activities liner shipping BEO is the only BEO that has been granted in Singapore without having access to the market. since the introduction of competition law. www.lexology.com/gtdt 195 © Law Business Research 2020 Singapore Drew & Napier LLC

Some other specific activities and industries are excluded from the Following on from this, it is not uncommon for multiple formal application of the section 34 prohibition, as specified in paragraphs 5, notices (for the provision of information, documents, or both) to be 6 and 7 of the Third Schedule to the Act. In particular, the section 34 issued by the CCCS to either the infringing parties or any other parties prohibition will not apply to: that might have information that is relevant to the investigation. In • any agreement or conduct that relates to any goods or services requesting such information, under section 63(3) of the Act, the CCCS to the extent to which any other written law, or code of practice may specify the time, place, manner and form of the provision of such, issued under any written law relating to competition, gives another and it is not uncommon that parties are required to attend formal inter- regulatory authority jurisdiction in the matter; views to provide the information or explain documents. • the supply of ordinary letter and postcard services by a person Upon completion of the investigation, and where the CCCS is licensed and regulated under the Postal Services Act (Cap 237A); proceeding to take enforcement action, the CCCS will give notice to the • the supply of piped potable water; infringing parties of the directions it intends to impose. These directions • the supply of wastewater management services, including the will be encapsulated within a proposed infringement decision (PID), collection, treatment and disposal of wastewater; which will set out the facts on which the CCCS relies and its reasons • the supply of bus services by a licensed bus operator under the for the proposed decision. Upon receipt of the PID, parties are given an Bus Services Industry Act 2015 (Act 30 of 2015); opportunity (usually within six to eight weeks) to make written repre- • the supply of rail services by any person licensed and regulated sentations to the CCCS on the findings in the PID. Parties, and their under the Rapid Transit Systems Act (Cap 263A); authorised representatives, are also afforded a reasonable opportu- • cargo terminal operations carried out by a person licensed and nity to inspect the documents in the CCCS’s file relating to the matters regulated under the Maritime and Port Authority of Singapore Act referred to in the PID. Parties may also request the ability to make oral (Cap 170A); representations to elaborate on their written representations. • the clearing and exchanging of articles undertaken by the Thereafter, and having regard to the written representations, the Automated Clearing House established under the Banking CCCS will issue its final infringement decision. (Clearing House) Regulations; or • any activity of the Singapore Clearing Houses Association in rela- Investigative powers of the authorities tion to its activities regarding the Automated Clearing House. 12 What investigative powers do the authorities have? Is court approval required to invoke these powers? Most of the exclusions were made on the basis that the specified activities would be subject to robust sector-specific regulation. Full explanations The CCCS has the following investigatory powers: can be found within Annex B of the CCCS’s Second Consultation Paper • order the production of specific documents or information; on the Draft Competition Bill. • carry out compulsory interviews with individuals; • carry out unannounced searches of business premises (requires Government-approved conduct the authorisation by a court or another body independent of the 10 Is there a defence or exemption for state actions, competition authority); government-approved activity or regulated conduct? • carry out unannounced limited searches of residential premises (requires the authorisation by a court or another body independent Section 33(4) of the Act states that the substantive prohibitions will of the competition authority); not apply to any activity carried on by, any agreement entered into or • right to ‘image’ computer hard drives using forensic IT tools; any conduct on the part of the government, any statutory body or any • right to retain original documents (in certain circumstances); person acting on behalf of the government or that statutory body, as the • right to require an explanation of documents or information case may be, in relation to that activity, agreement or conduct. supplied; and • right to secure premises overnight (eg, by seal) INVESTIGATIONS The CCCS has the power to issue a formal notice to request documents Steps in an investigation or information from any person where it considers that such document 11 What are the typical steps in an investigation? or information would be relevant to its investigations. The CCCS also has the ability to enter business premises to request the provision of In the usual course, parties generally become aware that they are being documents or information, and where it has a court-obtained warrant, it investigated for a potential contravention of activities prohibited by may also proceed to search business premises. Specifically, where the section 34 of the Singapore Competition Act (Cap 50B) (the Act) (the CCCS has obtained a warrant, it may: section 34 prohibition) in one of two ways. First, the Competition and • enter the premises specified in the warrant and use such force as Consumer Commission of Singapore (CCCS) may issue a formal notice, is reasonably necessary for the purpose of gaining entry; pursuant to section 63 of the Act, requiring the production of informa- • search any person on the premises if there are reasonable grounds tion or documents. This notice will set out the details of the potential for believing the person has in his or her possession any document, contravention that the CCCS has reasonable grounds for suspecting has equipment or article that has a bearing on the investigation; occurred. Second, the CCCS may conduct unannounced searches (dawn • search the premises and take copies or extracts from any document raids) of business premises (under a warrant and pursuant to section 65 appearing to be the kind in respect of which the warrant was granted; of the Act) where it has reasonable grounds for believing that there are • take possession of any document appearing to be the kind in respect relevant documents on the premises that would be concealed, removed, of which the warrant was granted if necessary for preserving the tampered with or destroyed if requested by formal notice. The CCCS document or prevent tampering, or if it is not reasonably practi- may also enter premises without a warrant under section 64 of the Act; cable to take copies of the document on the premises; however, in such cases the CCCS is required to first give written notice • take any other step necessary in order to preserve the documents of at least two working days of its intended entry, and it will not have the or prevent interference with them, including the sealing of prem- ability to actively search the premises. ises, offices or files;

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• require any person to provide an explanation of any document Interplay between jurisdictions appearing to be the kind in respect of which the warrant was 14 Which jurisdictions have significant interplay with your granted or state to the best of his or her knowledge where it jurisdiction in cross-border cases? If so, how does this affect could be found; the investigation, prosecution and penalising of cartel activity • require any person on the premises to produce any document in cross-border cases in your jurisdiction? of the relevant kind at the time and place, and in the form and manner, required by the CCCS; As competition law in Singapore is still at a relatively early stage, it is • require any information stored in electronic form to be produced in too early to draw any meaningful conclusions relating to how the inter- a form that could be taken away and read; and play between jurisdictions might affect the investigation, prosecution • remove from the premises equipment or article relating to any and punishment of cartel activity in Singapore. matter relevant to the investigation (eg, computers). Some of the parties of the international cartel in the Ball Bearings case were also investigated and penalised by other competition authori- INTERNATIONAL COOPERATION ties and courts in other jurisdictions, both before and after the CCCS had issued its infringement decision in May 2014 (eg, Japan (March 2013), Inter-agency cooperation Canada (January 2014), Australia (May 2014) and China (August 2014)). 13 Is there cooperation with authorities in other jurisdictions? However, the CCCS infringement decision does not specify that there If so, what is the legal basis for, and extent of, such was direct cooperation between the CCCS and other foreign authorities cooperation? in respect of investigations.

The Competition and Consumer Commission of Singapore (CCCS) has CARTEL PROCEEDINGS the ability, under section 88 of Singapore Competition Act (Cap 50B) (the Act) and with the approval of the Minister for Trade and Industry, to Decisions enter into arrangements with any foreign competition body under which 15 How is a cartel proceeding adjudicated or determined? each party may: • furnish to the other party information in its possession if the infor- Cartel matters are investigated and prosecuted by the CCCS, which has mation is required by that other party for the purpose of performing the ability to impose fines up to a statutory maximum or to make other any of its functions; and directions it deems fit to bring the infringement to an end. Appeals of the • provide such other assistance to the other party as will facilitate CCCS’s decisions can be made to the Competition Appeal Board (CAB). the performance by that other party of any of its functions. Thereafter, a more limited right of appeal (in respect of a point of law or the calculation of the financial penalty) is available to the High Court In entering into any such arrangement, the CCCS is required under and the Court of Appeal. section 88 of the Act to take certain precautions (including obtaining an undertaking from the relevant counterparty) relating to the subse- Burden of proof quent disclosure of any information provided. To date, the CCCS has 16 Which party has the burden of proof? What is the level of entered into three cooperation agreements with overseas enforce- proof required? ment agencies, namely, a memorandum of understanding to facilitate cooperation on competition enforcement with Indonesia’s Commission In establishing that an infringement of competition law has occurred (ie, for the Supervision of Business Competition, a memorandum of coop- that the section 34 prohibition has been infringed), the evidential burden eration with the Japan Fair Trade Commission to increase cross-border of proof is borne by the CCCS. However, in establishing the application enforcement cooperation between both authorities, and a memorandum of a statutorily provided exclusion, exemption or other defence (ie, that of understanding to facilitate competition and consumer protection law the arrangement in question gives rise to net economic benefit and thus enforcement between the CCCS and the Competition Bureau Canada. should be excluded through the application of paragraph 9 of the Third The CCCS has also joined multilateral frameworks that facilitate coop- Schedule to the Act), the onus would fall on the party seeking to apply eration on competition cases, such as the ASEAN Competition Enforcers’ the exclusion, exemption or defence. Network and the International Competition Network’s Framework on The standard of proof is the balance of probabilities. However, the Competition Agency Procedures. CCCS has consistently noted that the standard would depend on the It has been publicly acknowledged by the CCCS that to date there facts and circumstances of the case. In JJB Sports plc and Allsports has been at least one occasion where dawn raids performed by the CCCS Limited v OFT [2004] CAT 17) it stated that: in respect of a potential violation of the section 34 prohibition have been coordinated with overseas competition authorities. It is also a condi- [Given] the hidden and secret nature of cartels where little tion of leniency that the leniency applicant grant an appropriate waiver or nothing may be committed in writing, even a single item of of confidentiality to the CCCS in respect of any jurisdiction where the evidence, or wholly circumstantial evidence, depending on the applicant has also applied for leniency or any other regulatory authority particular context and the particular circumstances, may be suffi- for which it has informed of the conduct so that the CCCS may communi- cient to meet the required standard. cate with these authorities for the purposes of its investigations. Circumstantial evidence 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement?

Yes.

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Appeal process effect of the infringement. While section 69 provides a general discre- 18 What is the appeal process? tion to the CCCS in making directions, it provides specific examples of the directions that the CCCS may make, including: Appeals of the CCCS’s decisions are made to the CAB, which is an • requiring parties to the agreement to modify or terminate the independent body established under section 72 of the Act. The CAB agreement; comprises of 30 members including lawyers, economists, accountants, • to pay to the CCCS such financial penalty in respect of the infringe- academics and other business people. In the usual course, a panel of ment as the CCCS may determine (where it determines that the five members will be appointed to hear an appeal. The CAB’s powers infringement has been committed intentionally or negligently), but and procedures are set out primarily in section 73 of the Act and the not exceeding 10 per cent of such turnover of the business of the Competition (Appeals) Regulations. undertaking in Singapore for each year of infringement for such Parties to an agreement or persons whose conduct in respect period, up to a maximum of three years; of which the CCCS has made a decision as to the infringement of the • to enter such legally enforceable agreements as may be specified section 34 prohibition may appeal against (or with respect to) that deci- by the CCCS and designed to prevent or lessen the anticompetitive sion, the imposition or amount of any financial penalty, or any directions effects that have arisen; issued by the CCCS, to the CAB. An appellant would be required to prove • to dispose of such operations, assets or shares of such undertaking its case on a balance of probabilities to succeed in its appeal. in such manner as may be specified by the CCCS; and Appeals are made by lodging a notice of appeal, in accordance • to provide a performance bond, guarantee or other form of security with the Competition (Appeals) Regulations, within two months from on such terms and conditions as the CCCS may determine. the date of the CCCS’s infringement decision. Thereafter, the CCCS has six weeks to file its defence. The procedure and timetabling of the In determining the amount of financial penalty to impose, in its appeal may be determined at any time during the proceedings by the Guidelines on the Appropriate Amount of Penalty in Competition Cases CAB, usually through holding a case management conference with 2016 (Penalty Guidelines), the CCCS has stated that it will adopt the the parties. The CAB has broad powers to make directions it thinks fit following six-step approach: to determine the just, expeditious or economic conduct of the appeal • calculation of the base penalty having regard to the seriousness proceedings. of the infringement (expressed as a percentage rate) and the Parties may appeal CAB decisions, in accordance with section 74 turnover of the business of the undertaking in Singapore for the of the Act, to the High Court on a point of law arising from a decision of relevant product and relevant geographic markets affected by the the CAB, or in respect of any decision made by it as to the amount of the infringement in the undertaking’s last business year; financial penalty. Appeals are brought by way of originating summons, • adjustment for the duration of the infringement; and the procedure governing the appeal is set out in Order 55 of the • adjustment for other relevant factors (eg, deterrent value); Rules of Court (Cap 322, R 5, 2014 Rev ed). • adjustment for aggravating or mitigating factors; Parties may also appeal High Court decisions to the Court of Appeal • adjustment if the statutory maximum penalty is exceeded; and under section 74 of the Act. Such appeals are governed by the same • adjustment for immunity, leniency reductions or fast-track proce- procedure as all other civil appeals in Singapore. There is no further dure discounts. appeal right from the Court of Appeal. In every infringement decision published to date, the CCCS has imposed SANCTIONS financial penalties on the parties involved in cartel activity, unless they enjoyed immunity under the leniency programme. Criminal sanctions The maximum amount of financial penalty imposed may not 19 What, if any, criminal sanctions are there for cartel activity? exceed 10 per cent of the turnover of the business of the undertaking in Singapore for each year of infringement, up to a maximum of three Currently, involvement in cartel activity does not give rise to criminal years. There are no minimum penalties (in absolute terms) stipulated liability in Singapore. However, criminal prosecutions may arise in the in the Act. context of cartel investigations where a person: • refuses to provide information pursuant to a requirement on him Guidelines for sanction levels or her to do so; 21 Do fining or sentencing principles or guidelines exist? If yes, • destroys or falsifies documents; are they binding on the adjudicator? If no, how are penalty • provides false or misleading information; or levels normally established? What are the main aggravating • obstructs an officer of the Competition and Consumer Commission and mitigating factors that are considered? of Singapore (CCCS) in the discharge of his or her duties. Apart from the broad requirement that directions issued by the CCCS An offence of a nature described above is punishable by a prison must bring an infringement to an end, or remedy, mitigate or eliminate sentence not exceeding 12 months, a fine not exceeding S$10,000, or any adverse effect of an infringement, there are currently no publicly both. To date, we are not aware of any such criminal sanctions being available guidelines on how the CCCS will exercise its power to make imposed in Singapore. directions. The CCCS has published guidelines on how it will calculate the appropriate amount of financial penalty to impose on infringing Civil and administrative sanctions undertakings (namely, the Penalty Guidelines). While these guidelines 20 What civil or administrative sanctions are there for cartel do not have the force of law, they will generally be followed by the CCCS, activity? subject to any relevant decisions of the CAB relating to calculation of the financial penalty. The CCCS, under section 69 of Singapore Competition Act (Cap 50B) (the Besides setting out the approach that it will adopt in the calculation Act), can make such directions as it considers appropriate to bring an of penalty, the Penalty Guidelines also provide examples of aggravating infringement to an end or to remedy, mitigate or eliminate any adverse and mitigating factors that are considered.

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As regards aggravating factors, these include: Debarment • the undertaking’s role as a leader in, or an instigator of, the 24 Is debarment from government procurement procedures infringement; automatic, available as a discretionary sanction, or not • involvement of directors or senior management; available in response to cartel infringements? • retaliatory or other coercive measures taken against other under- takings aimed at ensuring the continuation of the infringement; It is understood that in cases where the CCCS has issued an infringe- • continuance of the infringement after the start of investigation; ment decision finding that two or more undertakings have been • repeated infringements by the same undertaking or other under- involved in bid rigging in connection with a government tender, the takings in the same group; CCCS will issue a recommendation for debarment action to be taken • unreasonable failure by an undertaking to respond to a request for by the Standing Committee on Debarment, which decides on all cases financial information on business turnover or relevant turnover; of debarment. The recommendation will be made by the CCCS as soon • in the case of bid rigging or collusive tendering, the CCCS may as possible after the timeframe for the filing of an appeal against the treat each infringement that an undertaking participates in, after infringement decision has expired. Where an appeal has been filed, the the first infringement, as an aggravating factor and calibrate with a recommendation will be made as soon as possible after the resolution proportionate percentage increase in penalties; of the appeal, where appropriate. In general, the debarment period will • infringements that are committed intentionally rather than negli- be commensurate with the financial or material losses suffered by the gently; and government agency. • retaliatory measures taken or commercial reprisal sought by the Notwithstanding the above, we note that undertakings that undertaking against a leniency applicant. infringe the section 34 prohibition may potentially be regarded as ineli- gible to participate in specific government procurement exercises by As regards mitigating factors, these include: the relevant procuring authorities if such infringement is considered • the undertaking’s role, for example, that the undertaking was a breach of the applicable terms and conditions of the procure- acting under severe duress or pressure; ment exercise. • genuine uncertainty on the part of the undertaking as to whether the agreement or conduct constituted an infringement; Parallel proceedings • adequate steps are taken with a view to ensuring compliance with 25 Where possible sanctions for cartel activity include criminal the section 34 prohibition, for example, the existence of any compli- and civil or administrative penalties, can they be pursued ance programme; in respect of the same conduct? If not, when and how is the • termination of the infringement as soon as the CCCS intervenes; and choice of which sanction to pursue made? • cooperation that enables the enforcement process to be concluded more effectively or speedily. There are currently no criminal sanctions for cartel activities in Singapore. It is open to the CCCS to impose multiple administrative Compliance programmes sanctions where it considers that such sanctions are necessary or 22 Are sanctions reduced if the organisation had a compliance appropriate. programme in place at the time of the infringement? PRIVATE RIGHTS OF ACTION The CCCS has stated in its Penalty Guidelines that the existence of a compliance programme is a mitigating factor that can be taken into Private damage claims consideration in the adjustment of a financial penalty. In considering 26 Are private damage claims available for direct and indirect the mitigating value to be accorded to the existence of a compliance purchasers? Do purchasers that acquired the affected programme, the CCCS will take into account the following: product from non-cartel members also have the ability to • whether there are appropriate compliance policies and proce- bring claims based on alleged parallel increases in the dures in place; prices they paid (‘umbrella purchaser claims’)? What level of • whether the programme has been actively implemented; damages and cost awards can be recovered? • whether the programme has the support of and is observed by senior management; Parties may bring private actions for a breach of competition law under • whether there is active and ongoing training for employees at all section 86 of the Act, which provides that any person who suffers loss or levels who may be involved in activities that are touched by compe- damage directly as a result of an infringement (including, among other tition law; and things, of the section 34 prohibition) shall have a right of action for relief • whether the programme is evaluated and reviewed at regular in civil proceedings. The Act does not allow parties to claim for double intervals. or treble damages. Such rights are predicated on an infringement finding by the Director disqualification CCCS, and may only be brought within two years following the expiry 23 Are individuals involved in cartel activity subject to orders of any applicable appeal periods. Third parties do not have standing prohibiting them from serving as corporate directors or to bring such claims in other circumstances, or to lodge an appeal officers? with the CAB.

The Act does not contain any provisions that expressly prescribe for orders to be issued to disqualify individuals involved in cartel activity from serving as corporate directors or officers. However, involve- ment in cartel activity may constitute a breach of directors' duties in company law.

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Class actions Subsequent cooperating parties 27 Are class actions possible? If so, what is the process for such 29 Is there a formal programme providing partial leniency for cases? If not, what is the scope for representative or group parties that cooperate after an immunity application has been actions and what is the process for such cases? made? If so, what are the basic elements of the programme? If not, to what extent can subsequent cooperating parties expect The only form of group litigation in Singapore is through a representa- to receive favourable treatment? tive action (under Order 15, Rule 12 of the Rules of Court). Under this action, proceedings may be commenced without the leave of the court, Where a party who is not the first to come forward provides information to under the usual court processes. However, the defendant may apply the CCCS about a cartel, after the CCCS has opened its investigation but for the representative proceedings to be discontinued, and the court before the CCCS has sufficient information to issue a written notice that it may decide whether a representative action is appropriate and whether proposes to issue an infringement decision, the party cannot benefit from it is properly constituted. Notwithstanding the fact that representative immunity, but may benefit from lenient treatment by way of a reduction actions may be brought, it would still be necessary for parties to estab- of up to 50 per cent of the financial penalties (partial leniency). lish that they have suffered direct loss, as required by section 86 of the To enjoy partial leniency, the following conditions must be fulfilled: Act. To date, we are not aware of any such proceedings being taken in • the undertaking is required to: Singapore with respect to competition-related matters. • provide the CCCS with all the information, documents and evidence available to it regarding the cartel activity immedi- COOPERATING PARTIES ately and such information, documents and evidence must provide the CCCS with sufficient basis to commence an Immunity investigation; 28 Is there an immunity programme? If so, what are the basic • grant an appropriate waiver of confidentiality to the CCCS in elements of the programme? What is the importance of being respect of any jurisdiction where it has also applied for leniency ‘first in’ to cooperate? or any other regulatory authority for which it has informed of the conduct; The Competition and Consumer Commission of Singapore (CCCS) oper- • admit unconditionally to the conduct for which leniency is ates a leniency programme, which encompasses the prospect of full sought and details the extent to which this had an impact in immunity in certain circumstances. The CCCS’s leniency programme Singapore by preventing, restricting or distorting competition is described in detail in its Guidelines on Lenient Treatment for within Singapore; Undertakings Coming Forward with Information on Cartel Activity 2016 • maintain continuous and complete cooperation throughout (Revised Leniency Guidelines). the investigation and until the conclusion of any action by the Under the leniency programme, where a party provides infor- CCCS arising as a result of the investigation; and mation to the CCCS about a cartel before the CCCS has opened an • refrain from further participation in the cartel activity from the investigation, that party may benefit from full immunity from financial time of disclosure of the cartel activity to the CCCS (except as penalties imposed by the CCCS in respect of such. Paragraphs 2.2 and may be directed by the CCCS); and 2.4 of the Revised Leniency Guidelines states that an undertaking will • the information adds significant value to the CCCS’s investigation. benefit from full immunity from financial penalties if all of the following conditions are satisfied: Any reduction in financial penalties under these circumstances is discre- • the undertaking is the first to provide the CCCS with evidence tionary on the part of the CCCS. While the Revised Leniency Guidelines of the cartel activity before an investigation has commenced, do not specifically identify the likely reductions in financial penalties with provided that the CCCS does not already have sufficient informa- respect to subsequent applications, it does specify that the CCCS will tion to establish the existence of the alleged cartel activity; and take into account: • the undertaking: • the stage at which the undertaking comes forward; • provides the CCCS with all the information, documents and • the evidence already in the CCCS’s possession; and evidence available to it regarding the cartel activity immediately • the quality of the information provided by the undertaking. and such information, documents and evidence must provide the CCCS with sufficient basis to commence an investigation; Going in second • grants an appropriate waiver of confidentiality to the CCCS 30 How is the second cooperating party treated? Is there an in respect of any jurisdiction where it has also applied for ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, leniency or any other regulatory authority for which it has how does it operate? informed of the conduct; • unconditionally admits to the conduct for which leniency is The undertaking that is ‘second in’ may benefit from a reduction in finan- sought and details the extent to which this had an impact in cial penalties of up to 50 per cent. While the Revised Leniency Guidelines Singapore by preventing, restricting or distorting competition do not specifically identify the likely reductions in financial penalties with within Singapore; respect to subsequent applications, it does specify that the CCCS will • maintains continuous and complete cooperation throughout take into account the stage at which the undertaking comes forward, the the investigation and until the conclusion of any action by the evidence already in the CCCS’s possession and the quality of the infor- CCCS arising as a result of the investigation; mation provided by the undertaking. • refrains from further participation in the cartel activity from To date, we are not aware of any public disclosure by the CCCS of the the time of disclosure of the cartel activity to the CCCS (except amount of reduction in financial penalties enjoyed by leniency applicants. as may be directed by the CCCS); Accordingly, it may be difficult in practice to make general observations • must not have been the one to initiate the cartel; and about the difference in treatment between the ‘second in’ party and those • must not have taken any steps to coerce another undertaking that applied for leniency later. However, on the understanding that the to take part in the cartel activity. CCCS will take into account the stage at which the undertaking comes

200 Cartel Regulation 2021 © Law Business Research 2020 Drew & Napier LLC Singapore forward, and the evidence that it already has in its possession before fails to perfect the marker within the given time, the next applicant in the deciding on the level of reduction in penalties, it is likely that parties that marker queue will be allowed to perfect its marker to obtain immunity or come in later may find it more difficult to produce crucial and quality a 100 per cent reduction in financial penalties. Once the marker has been evidence to justify a significant reduction. To the extent that the ‘first in’ perfected, the other applicants in the marker queue will be informed that party has failed to perfect its marker, it is also possible for the ‘second in’ they no longer qualify for full immunity or a 100 per cent reduction in party to be provided an opportunity to perfect it and benefit from either financial penalties. It is then up to them to decide whether to submit full immunity or full leniency (where such party may obtain a reduction subsequent leniency applications. The marker system does not apply to of up to 100 per cent in financial penalties). subsequent leniency applications. A leniency plus system, whereby a party may benefit from further The Revised Leniency Guidelines state that in order to qualify for the reductions in financial penalties in respect of one cartel investigation by marker the undertaking must provide its name and a description of the providing information to the CCCS in respect of another cartel, is avail- cartel conduct in sufficient detail to allow the CCCS to determine that no able in Singapore. To benefit from this programme, the CCCS states in its other undertaking has applied for immunity or a reduction of up to 100 Revised Leniency Guidelines that the following conditions must be met: per cent for such similar conduct. The CCCS also states in its Revised • the evidence provided by the undertaking relates to a completely Leniency Guidelines that the grant of a marker is discretionary, but that separate cartel activity. The fact that the activity is in a separate it is expected to be the norm rather than the exception. market is a good indicator, but not always decisive; and • the undertaking would qualify (in accordance with the usual quali- Cooperation fication criteria for leniency applications) for total immunity from 32 What is the nature, level and timing of cooperation that is financial penalties or a reduction of up to 100 per cent in the required or expected from an immunity applicant? Is there any amount of the financial penalty in relation to its activities in the difference in the requirements or expectations for subsequent second market. cooperating parties that are seeking partial leniency?

If a party can satisfy the above conditions, then it could benefit from a The CCCS’s Revised Leniency Guidelines provide that in every leniency reduction in financial penalties in respect of the first cartel, which is in and immunity application, the applicant must provide the CCCS with all addition to any reduction that it already stands to receive for its coopera- the information, documents and evidence available to it regarding the tion in respect of the first cartel. cartel activity, and must maintain continuous and complete cooperation throughout the investigation and until the conclusion of any action by the Approaching the authorities CCCS arising as a result of the investigation. It does not appear from the 31 Are there deadlines for initiating or completing an application Guidelines that different requirements or expectations as to the nature, for immunity or partial leniency? Are markers available and level and timing of cooperation apply to subsequent leniency applicants. what are the time limits and conditions applicable to them? However, any reduction in the level of financial penalty is subject to the CCCS’s discretion, which will take into account the stage at which an Immunity may only be sought from the CCCS if the applicant is first applicant comes forward, the evidence already in the CCCS’s possession, to provide evidence of cartel activity before an investigation has and the quality of information provided by the applicant. commenced. Accordingly, such applications should be made as soon as possible. The marker system has facilitated such early applications, as Confidentiality there is now no need for an applicant to ensure that it has all of the 33 What confidentiality protection is afforded to the immunity evidence collated and ready for submission to the CCCS at the time it applicant? Is the same level of confidentiality protection makes its application. applicable to subsequent cooperating parties? What While applications for leniency may be made after the CCCS has information will become public during the proceedings and commenced its investigation, full leniency can only be granted to the first when? applicant that provides the CCCS with evidence of cartel activity. While there is no requirement for the applicant to be the first to provide infor- The Revised Leniency Guidelines provide, at paragraph 8.1, that the mation in a partial leniency application, it is still advisable in every case CCCS will: to approach the CCCS as soon as possible because in both full leniency and partial leniency applications, the CCCS will consider the stage at Endeavour, to the extent consistent with its obligations to disclose which the undertaking comes forward and the evidence already in the or exchange information, to keep the identity of such undertakings CCCS’s possession before assessing the level of leniency to grant. The confidential throughout the course of its investigation, until the earlier the party makes such an application and the higher up the leni- CCCS issues a written notice under section 68(1) of the Act of its ency queue they are, the more likely that the information provided will intention to make a decision that the section 34 prohibition has be of value to the CCCS and the more likely that the party will stand to been infringed’. benefit from lenient treatment. To qualify for reduction in financial penalty through a leniency To the extent that information is provided to the CCCS in the course of application, applications must be made before the CCCS issues a written making a leniency application (regardless of whether it is an immunity, notice under section 68(1) of the Act of its intention to make an infringe- full leniency or partial leniency application), in responding to a notice of ment decision. the CCCS to provide information or in otherwise cooperating with the The introduction of the marker system has provided applicants with CCCS, the disclosing party can request confidential treatment in respect some flexibility over the need to immediately provide the CCCS with all of of such information, or the relevant parts thereof, in accordance with the necessary information and evidence required to qualify for leniency section 89(3) of the Act. or immunity. If the applicant is unable to immediately submit sufficient At the point that the CCCS issues its proposed infringement deci- evidence to allow the CCCS to establish the existence of the cartel sion (PID), information provided to the CCCS that is not subject to activity, the applicant will be given a limited time to gather sufficient confidential treatment as outlined above, will be available for inspection information and evidence in order to perfect the marker. If the applicant by all parties subject to the CCCS’s PID. www.lexology.com/gtdt 201 © Law Business Research 2020 Singapore Drew & Napier LLC

Settlements infringement decision, and may require the party to pay the full 34 Does the investigating or prosecuting authority have the costs of the CCCS’s appeal regardless of the outcome of the ability to enter into a plea bargain, settlement, deferred CCCS’s appeal; and prosecution agreement (or non-prosecution agreement) or • acceptance, which will involve the CCCS adopting a stream- other binding resolution with a party to resolve liability and lined PID or infringement decision (as appropriate) reflecting penalty for alleged cartel activity? What, if any, judicial or the content agreed between the CCCS and each party in the other oversight applies to such settlements? fast-track agreement, and providing for a reduction of 10 per cent on the financial penalty that would have otherwise With effect from 1 December 2016, the CCCS has introduced a fast- been imposed but for the party’s participation in the fast-track track procedure for cases involving the infringement of the section 34 procedure. prohibition. The CCCS Practice Statement on the Fast Track Procedure for Section 34 and Section 47 Cases (Fast Track Procedure Practice Parties to such a procedure may not disclose to any third party any infor- Statement) explains that under this procedure, ‘parties who admit liability mation received from their participation in this procedure unless express for their infringement will be eligible for a fixed percentage reduction prior authorisation by the CCCS has been obtained. in the amount of financial penalty they are directed to pay pursuant to As this procedure has been introduced only recently, it is as yet section 69(2)(d) of the Act’. This procedure is not mutually exclusive from untested in the courts but it would appear from the language of the Fast the leniency regime and it is possible for a leniency applicant to benefit Track Procedure Practice Statement that the level of judicial oversight from discounts arising from both leniency and the fast-track procedure. that applies to matters handled under the fast-track procedure would not While investigated parties may indicate to the CCCS their willing- differ materially from other cases. ness to participate in the fast-track procedure, the CCCS retains a broad discretion to determine whether the fast-track procedure would be suit- Corporate defendant and employees able for the case under investigation. In general, the CCCS envisages 35 When immunity or partial leniency is granted to a corporate that it would initiate the fast-track procedure before the issuance of a PID defendant, how will its current and former employees be and that this procedure is suitable for cases where the CCCS is reason- treated? ably satisfied, based on information and evidence available to it, that the evidentiary standard of proof has been met such that the CCCS would be Employees contravening the prohibited actions contained in section 34 prepared to issue a PID or infringement decision. Singapore Competition Act (Cap 50B) (the Act) (the section 34 prohibition) The fast-track procedure will involve the following steps: would be considered contraventions by their employing undertaking in • initiation of the procedure; Singapore. In this regard, and given that there are no criminal sanctions • discussion between the CCCS and the participating parties on for engaging in activity in breach of the section 34 prohibition, there is no the timelines involved, the scope and gravity of the conduct, the distinction between an undertaking and its employees from the perspec- evidence used to determine the scope of the contemplated infringe- tive of a leniency or immunity application. ment, non-confidential versions of key documents that the CCCS regards as necessary to enable the party to ascertain its position Dealing with the enforcement agency regarding the contemplated infringements, and the possible range 36 What are the practical steps for an immunity applicant or and quantum of financial penalties calculated according to the subsequent cooperating party in dealing with the enforcement Penalty Guidelines; and agency? • agreement to accept the fast-track procedure offer, which will include: Leniency or immunity applications may be made orally or in writing by an • an acknowledgement of the party’s liability for the infringe- undertaking or its authorised representative. In the usual course, initial ment and its involvement in it; contact is made by phone and a time is arranged for the application to • an agreement to cooperate throughout the CCCS’s investigation; be made in person. • an indication of the maximum amount of the financial penalties The Revised Leniency Guidelines indicate that it is possible that each party would accept to be imposed; anonymous enquiries can be made to the CCCS to see if leniency is still • a reservation of rights by the CCCS to adjust the figures in available in respect of a particular matter, but that any subsequent appli- applying the penalties provided that the final penalty does not cation cannot be made anonymously. exceed the maximum amount of financial penalties the party In order to qualify for leniency or immunity, undertakings must, has indicated, and make further adjustments that may reduce among other things, maintain continuous and complete cooperation with the final penalty without further notice to the party; the CCCS throughout the investigation and until the conclusion of any • confirmation of the party’s request to use the fast-track action by the CCCS arising as a result of the investigation. Such under- procedure; takings must also provide the CCCS with all the information, documents • confirmation by the party that it has been sufficiently informed and evidence available to it regarding the cartel activity. of the contemplated infringements and that it has been given the opportunity to be heard; DEFENDING A CASE • confirmation by the party that it will not make extensive written representations, request to make oral representations to the Disclosure CCCS or request to inspect the documents and evidence in the 37 What information or evidence is disclosed to a defendant by CCCS’s file, but it can provide a concise memorandum identi- the enforcement authorities? fying any material factual inaccuracies in the PID; • an acknowledgement that should the party bring appeal The CCCS will provide all parties that are subject to a PID with a copy of proceedings before the CAB in respect of the CCCS’s decision, it. The PID contains the CCCS’s arguments of fact and law with regard the CCCS reserves the right to make an application to the CAB to the proposed decision and refers to the evidence on which the CCCS for a penalty amount that differs from that calculated in its proposes to rely. Such parties are also provided with a copy of the

202 Cartel Regulation 2021 © Law Business Research 2020 Drew & Napier LLC Singapore

CCCS’s file on the matter, save for the fact that confidential information of all parties will be redacted, and the CCCS’s internal documents will not be disclosed.

Representing employees 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should a present or past employee be advised to obtain independent legal advice or representation? Lim Chong Kin [email protected]

Cartel involvement does not give rise to liability for individuals or Corinne Chew employees. Accordingly, representation is at the corporation level. [email protected]

Multiple corporate defendants 10 Collyer Quay #10-01 39 May counsel represent multiple corporate defendants? Does Ocean Financial Centre it depend on whether they are affiliated? Singapore 049315 Singapore It is possible for counsel to represent more than one party, subject to Tel: +65 6531 4110 adherence to the standard professional and ethical responsibilities. Fax: +65 6535 4864 Usually, in representing multiple parties, such parties must have a www.drewnapier.com common interest in the proceedings, and this is more likely to be the case if the corporations represented are affiliated.

Payment of penalties and legal costs Further to this, it is in a party’s interest to cooperate during the 40 May a corporation pay the legal penalties imposed on its course of the CCCS’s investigation. In all the infringement decisions employees and their legal costs? issued to date, the cooperation of the investigated parties during the investigation was viewed as a mitigating factor, and in many instances Penalties are imposed only at the corporation level in Singapore. parties benefited from a reduced financial penalty. It is also clear from statements of the CCCS in all of these decisions that the immediate Taxes cessation of the potentially infringing conduct at a very early stage in 41 Are fines or other penalties tax-deductible? Are private the proceedings might be considered, at least, a non-aggravating factor. damages payments tax-deductible? The CCCS has stated in its Penalty Guidelines that the existence of a compliance programme may be taken into consideration as a miti- Fines and penalties are generally not considered to be tax-deductible. gating factor in the context of calculating the financial penalty. To date, there has been no follow-on private action for competition law infringements, so the position regarding tax-deductibility of awards of UPDATE AND TRENDS private damages remains untested in the context of competition law infringements. However, it is unlikely that such private damages will be Recent cases considered to be tax-deductible. 44 What were the key cases, judgments and other developments of the past year? International double jeopardy 42 Do the sanctions imposed on corporations or individuals take On 4 June 2020, the CCCS issued an infringement decision against into account any penalties imposed in other jurisdictions? In three construction companies for infringing prohibitions on activities private damage claims, is overlapping liability for damages in contained in section 34 Singapore Competition Act (Cap 50B) (the Act) other jurisdictions taken into account? (the section 34 prohibition) by participating in anticompetitive agree- ments to rig the bids for the provision of building, construction and Neither the Act nor the CCCS’s Revised Leniency Guidelines specify that maintenance services under a tender by Wildlife Reserves Singapore. sanctions imposed in other jurisdictions will be taken into account in The CCCS took the view that bid rigging is one of the most harmful types determining the amount of financial penalties to impose. To date, the of anticompetitive conduct. A total of S$32,098 in financial penalties was CCCS has also not considered this factor directly in any of its infringe- imposed on the parties involved. ment decisions. There have been no private actions brought in Singapore to date in Regime reviews and modifications respect of competition law infringements. However, it is noteworthy that 45 Are there any ongoing or anticipated reviews or proposed section 86 of the Act provides third parties a right to damages only where changes to the legal framework, the immunity/leniency they have suffered loss directly as a result of the infringing conduct. programmes or other elements of the regime?

Getting the fine down Currently, there are no specific proposed changes to the legal frame- 43 What is the optimal way in which to get the fine down? work relating to cartels or the immunity and leniency programmes.

An application for leniency may result in full immunity from prosecution or a reduction of up to 100 per cent of the financial penalty imposed. Furthermore, the use of the leniency plus system is another avenue open to parties in seeking to further reduce their penalties. www.lexology.com/gtdt 203 © Law Business Research 2020 Singapore Drew & Napier LLC

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

On 20 July 2020, the CCCS announced that it has issued a Guidance Note on Collaborations between Competitors in Response to the COVID-19 Pandemic. Given the exceptional nature of the pandemic, for a tempo- rary period, the CCCS will assume that collaborations that sustain or improve the supply of essential goods or services in Singapore, which do not involve price-fixing, bid rigging, market sharing or output limita- tion, are likely to generate net economic benefits and therefore unlikely to infringe the Act. The CCCS will generally not investigate such collabo- rations put in place from 1 February 2020 and which will expire by 31 July 2021. It would be best for clients seeking to collaborate during this period to ensure that: • the efficiency brought about by the collaboration is objective and quantifiable; • there is a direct causal link between the agreement and the efficiency; • both the collaboration and restrictions imposed are necessary to help increase supply or bring about more efficiencies than in their absence and there are no better alternatives to do so; and • the collaboration is limited in nature to a particular good or market and limited in time.

204 Cartel Regulation 2021 © Law Business Research 2020 Slovenia

Irena Jurca, Katja Zdolšek and Stojan Zdolšek* Odvetniska druzba Zdolsek

LEGISLATION AND INSTITUTIONS of Slovenia, in particular, the following non-exhaustively listed agreements: Relevant legislation • direct or indirect fixing of purchase or selling prices or other 1 What is the relevant legislation? trading conditions; • limiting or controlling production, sales, technical progress or The relevant legislation is the Slovenian Act on Prevention of the investment; Restriction of Competition (the Competition Act), published in the Official • applying dissimilar conditions to equivalent transactions with other Journal of the Republic of Slovenia No. 36/2008. The Competition Act trading parties, thereby placing them at a competitive disadvantage; entered into force on 26 April 2008 and has undergone several amend- • making the conclusion of contracts subject to acceptance by the ments since then. other parties of supplementary obligations that, by their nature Violation of the prohibition of restricting agreements may amount or according to commercial usage, have no connection with the to a criminal offence, regulated by the Slovenian Criminal Code and the subject of their contracts; and Slovenian Liability of Legal Persons for Criminal Offences Act. • sharing markets or sources of supply.

Relevant institutions When an agreement may affect trade between European Union member 2 Which authority investigates cartel matters? Is there states, the provisions of article 101 of the Treaty on the Functioning of a separate prosecution authority? Are cartel matters the European Union (TFEU) shall also apply. adjudicated or determined by the enforcement agency, a Acting in contravention of the prohibition of restrictive agreements separate tribunal or the courts? in article 6 of the Competition Act or article 101 TFEU may represent a minor offence pursuant to the Competition Act. The Slovenian Competition Agency (the Agency), which acts as an Cartels may also amount to a criminal offence pursuant article 225 administrative authority and as a minor offence authority, is responsible of the Slovenian Criminal Code, which defines an illegal restriction of for the enforcement of the competition rules. The Agency may also bring competition as a criminal offence. Whoever, in pursuing an economic an action before the competent court for nullity of prohibited restrictive activity contrary to regulations governing the protection of competition, agreements. violates the prohibition of restrictive agreements between companies, Criminal offences are prosecuted by state prosecutors and adju- abuses the dominant position of one or more companies, or creates a dicated before competent regular courts having jurisdiction over forbidden concentration of companies and thus prevents or significantly criminal matters. impedes or distorts competition in Slovenia, or in the EU market, or Civil actions for damages are adjudicated by courts of general its significant part, or significantly influences trade between member jurisdiction. states, which results in a large property benefit for such a company or companies, or a large property damage for another company, shall Changes be sentenced to imprisonment for not less than six months and not 3 Have there been any recent changes, or proposals for change, more than five years. Intent of the perpetrator has to be proven. Legal to the regime? persons may be liable and sentenced for a criminal offence pursuant to the provisions of the Liability of Legal Persons for Criminal Offences Act. The last amendment of the Competition Act, published in the Official Journal of the Republic of Slovenia No. 23/2017, came into force on 20 Joint ventures and strategic alliances May 2017, focusing mainly on certain material and procedural rules 5 To what extent are joint ventures and strategic alliances regarding claims for damages in the light of the implementation of potentially subject to the cartel laws? Directive 2014/104/EU. See www.lexology.com/gtdt. Substantive law 4 What is the substantive law on cartels in the jurisdiction?

Article 6 of the Competition Act prohibits as null and void agreements between undertakings, decisions by associations of undertakings and concerted practices of undertakings (all referred to in this chapter as agreements) that have as their object or effect the prevention, restriction or distortion of competition on the territory of the Republic www.lexology.com/gtdt 205 © Law Business Research 2020 Slovenia Odvetniska druzba Zdolsek

APPLICATION OF THE LAW AND JURISDICTIONAL REACH of markets or sources of supply, and to vertical agreements having as their object fixing of retail prices or granting territorial protection to the Application of the law participating undertakings or to third persons. 6 Does the law apply to individuals, corporations and other Regarding block exemptions, the provisions of the Regulations of the entities? European Commission or the Council of the European Union shall apply with the necessary changes, even if there is no indication of an effect on Pursuant to the Competition Act, an undertaking means any entity that the trade between EU states. The Agency may withdraw the benefit of the is engaged in economic activities, regardless of its legal and organi- block exemption if it finds that an agreement has certain effects incom- sational form and ownership status. Therefore, the Competition Act patible with article 6(3) of the Competition Act or article 101(3) TFEU. applies to both individuals and corporations and also to an association of undertakings that is not directly engaged in an economic activity but Government-approved conduct affects or may affect the behaviour on the market of undertakings. 10 Is there a defence or exemption for state actions, government-approved activity or regulated conduct? Extraterritoriality 7 Does the regime apply to conduct that takes place outside the See www.lexology.com/gtdt. jurisdiction (including indirect sales into the jurisdiction)? If so, on what jurisdictional basis? INVESTIGATIONS

The Competition Act prohibits restrictive agreements that have as their Steps in an investigation object or effect the prevention, restriction or distortion of competition 11 What are the typical steps in an investigation? in the territory of Slovenia, irrespective of where they occurred or were entered into. The Slovenian Competition Agency (the Agency) initiates the proce- dure ex officio with an order on the commencement of the procedure, Export cartels although it may exercise certain investigative powers prior to that. An 8 Is there an exemption or defence for conduct that only affects extract of the order on the commencement of procedure is published on customers or other parties outside the jurisdiction? the Agency’s website. The Agency is obliged to perform a fact-finding procedure in There is no such exemption foreseen in the Competition Act. accordance with the principle of material truth and free assessment of evidence. The Agency shall decide without an oral hearing unless estab- Industry-specific provisions lished otherwise. In cases of urgency, interim measures may be adopted. 9 Are there any industry-specific infringements? Are there any The Agency notifies the parties about findings on relevant facts and industry-specific defences or exemptions? evidence prior to issuing a decision with a statement of objections on which parties may comment within a time limit set by the Agency and There are no industry-specific infringements or industry-specific not longer than 45 days. defences foreseen in the Competition Act. At the closing of the administrative procedure, the Agency may The Competition Act recognises the following exemptions: the issue a decision establishing the existence of an infringement and article 6(3) exemption, de minimis exemption and block exemption. require the undertaking to bring such infringement to an end, or a According to article 6(3) of the Competition Act, similar to article decision by which the Agency accepts the commitments offered by the 101(3) of the Treaty on the Functioning of the European Union (TFEU), undertaking and makes them binding. The Agency may terminate the the undertaking invoking the exception must demonstrate and bear the procedure with an order in case the infringement is not found or if the burden of proving the following cumulative conditions for the excep- procedure would not be reasonable. tion to the prohibition of restrictive agreements in article 6(1) of the Liability for minor offences is established and fines are imposed by Competition Act: the Agency in a minor offences procedure. • agreements must contribute to improving the production or distri- bution of goods or to promoting technical and economic progress Investigative powers of the authorities while allowing consumers a fair share of the resulting benefit; 12 What investigative powers do the authorities have? Is court • shall not impose on the undertakings concerned restrictions that approval required to invoke these powers? are not indispensable to the attainment of these objectives; and • shall not afford such undertakings the possibility of eliminating The Agency may address a request for information to each under- competition in respect of a substantial part of the products or taking, partners, members of management or supervisory boards and services that are the subject of the agreement. persons employed with the undertaking. If the Agency requests the information with a special order, an undertaking is obliged to submit Under the de minimis exemption, regulated in article 7 of the all requested documents and information, but not to admit an infringe- Competition Act, the prohibition of restrictive agreements shall not ment. If an undertaking to which such an order was issued provides apply to agreements of minor importance, which are agreements incorrect, incomplete or misleading information or does not supply the between undertakings whose cumulative market share does not exceed requested information within the set time limit, a penalty up to €50,000 10 per cent in the case of horizontal agreements and mixed horizontal- may be imposed. vertical agreements or agreements where it is difficult to determine The Agency may also carry out an inspection on the premises of whether they are horizontal or vertical, or 15 per cent in the case of an undertaking, either upon consent given by an undertaking or person vertical agreements. In the case of cumulative effects, thresholds are whose data is being inspected or upon a court order, issued by the judge decreased by 5 per cent. But even if these thresholds are not met, de of the Regional Court in Ljubljana upon the Agency’s proposal if there minimis exemption shall not apply to horizontal agreements having as are reasonable grounds for suspicion of an infringement and the prob- their object fixing of prices, limiting of the production or sales or sharing ability of finding relevant evidence with investigation exists.

206 Cartel Regulation 2021 © Law Business Research 2020 Odvetniska druzba Zdolsek Slovenia

The inspection is conducted by employees of the Agency, whereby member states has not been affected, an order terminating the proce- specific professional tasks may be carried out by special organisations, dure regarding the infringement of the provisions of articles 101 or 102 institutions or individuals, and with police assistance, if the undertaking TFEU is issued. obstructs the investigation or there are reasonable grounds to expect Where the European Commission initiates procedure for the that. During the investigation, authorised persons are also empowered to: infringement of article 101 or 102 TFEU or has already issued a decision • enter and inspect the premises (premises, land and means of on the same matter, in which the procedure had also been initiated by transport) at the registered office of the undertaking and at other the Agency, the Agency shall terminate the procedure initiated by the locations at which the undertaking itself or another undertaking Agency with an order. The Agency may also issue an order of termina- authorised by the undertaking concerned performs the activity and tion in cases where a competition authority of another EU member state business for which there is a probability of an infringement; has initiated procedure for the infringement of articles 101 or 102 TFEU, • examine the business books and other documentation; or has issued a decision on the same matter. • take or obtain in any form copies of or extracts from business books and other documentation; CARTEL PROCEEDINGS • seal any business premises and business books and other docu- mentation for the period and to the extent necessary for the Decisions inspection; and 15 How is a cartel proceeding adjudicated or determined? • ask any representative or member of staff of the undertaking to give an oral or written explanation of facts or documents relating The Slovenian Competition Agency (the Agency) conducts the adminis- to the subject matter and purpose of the inspection. trative procedure and minor offence procedure. In the administrative procedure, the Agency assesses restric- A penalty amounting to up to 1 per cent of the turnover in the preceding tive practices and may issue a decision establishing the existence of business year on an undertaking and up to €50,000 on a natural person an infringement of article 6 of the Slovenian Act on Prevention of the may be imposed in case of an obstruction of an inspection. Restriction of Competition (the Competition Act) or article 101 of the The Agency may also conduct the investigation on other premises, Treaty on the Functioning of the European Union (TFEU) and require on the basis of prior court order, if there are reasonable grounds to the undertaking concerned to bring such infringement to an end, may suspect that business books and other documentation relating to the accept commitments with the decision, or may issue an order of termi- subject matter of the inspection are being kept at the premises of an nation if no infringement is found or if specific circumstances indicate undertaking against which the procedure has not been initiated, or on that the procedure would not be reasonable. the residential premises of members of the management or supervisory In the minor offence procedure, the Agency assesses liability for a bodies or of staff or other associates of the undertaking against which minor offence and imposes the fine. the procedure has been initiated. Burden of proof INTERNATIONAL COOPERATION 16 Which party has the burden of proof? What is the level of proof required? Inter-agency cooperation 13 Is there cooperation with authorities in other jurisdictions? The Agency bears the burden of proof for the alleged infringement. The If so, what is the legal basis for, and extent of, such undertaking against which the procedure is initiated has to demonstrate cooperation? exculpatory conditions as stipulated in article 6(3) of the Competition Act or article 101(3) TFEU. The Slovenian Competition Agency (the Agency) cooperates with the European Commission and other competition offices in EU member Circumstantial evidence states on the basis of the Regulation No. 1/2003 and the Competition 17 Can an infringement be established by using circumstantial Act. The Agency is a member of the European Competition Network evidence without direct evidence of the actual agreement? (ECN), International Competition Network (ICN) and the Competition Committee of the OECD. In 2017, the Agency participated in 28 meetings Any suitable evidence can be used as evidence in the procedure before of the working groups of the ECN and responded to 41 requests for the Agency. In certain cases, for example concerted practices, the finding information received through that network. of infringement may be inferred from circumstantial evidence.

Interplay between jurisdictions Appeal process 14 Which jurisdictions have significant interplay with your 18 What is the appeal process? jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity Judicial protection against the decisions of the Agency before an admin- in cross-border cases in your jurisdiction? istrative court is ensured against all decisions and orders of the Agency if not expressly excluded. The party or other participant to the proce- The Agency may issue a decision establishing the existence of an dure is obliged to file a lawsuit against the decision of the Agency within infringement of article 6 or article 9 of the Competition Act or article 30 days. New evidence or facts that have not already been presented 101 or article 102 of the Treaty on the Functioning of the European in the procedure before the Agency are not allowed. The court shall Union (TFEU). test a decision within the limits of the claim and within the limits of In the case of the procedure alleging the infringement of articles the grounds stated in the lawsuit, and shall ex officio pay attention 101 or 102 TFEU, the Agency shall conduct a single procedure, in which to the certain essential procedural infringements pursuant to the the Agency shall also conduct a procedure alleging the infringement Administrative Disputes Act. Matters shall be considered urgent and a of the provisions of article 6 or 9 of the Competition Act. If during the priority. In certain cases, a further extraordinary – revision procedure the Agency should determine that the trade between EU to the Supreme Court - is possible. www.lexology.com/gtdt 207 © Law Business Research 2020 Slovenia Odvetniska druzba Zdolsek

Decisions issued in the minor offence procedure are subject to For legal persons and entrepreneurs their economic power and previous judicial review before the District Court of Ljubljana pursuant to the convictions are considered. provisions of the Minor Offences Act. Matters are considered a priority. The court may dismiss the request for judicial protection as unfounded, Compliance programmes abolish or change the decision of the Agency. Further appeal against the 22 Are sanctions reduced if the organisation had a compliance court decision is possible. programme in place at the time of the infringement? Court decisions in criminal procedures may be appealed before the competent higher court, and further appealed before the Supreme The only official criteria for determining the level of the fine are the ones Court pursuant to the provisions of the Criminal Procedure Act. laid down by the Minor Offences Act. There is currently no case law indi- cating how a compliance programme would be considered in the context SANCTIONS of mitigating factors in determining a fine.

Criminal sanctions Director disqualification 19 What, if any, criminal sanctions are there for cartel activity? 23 Are individuals involved in cartel activity subject to orders prohibiting them from serving as corporate directors or Pursuant to the Criminal Code, the penalty of not less than six months officers? and not more than five years of imprisonment is foreseen for the illegal restriction of competition as a criminal offence. The court may in certain There is no concept of ‘director disqualification’ in Slovenian competi- cases remit the penalty for the perpetrator who announced the criminal tion law; however, directors may be held personally liable for a criminal offence. Granting of immunity by the Slovenian Competition Agency (the offence, punishable by imprisonment between six months to five years Agency) does not necessarily mean immunity shall also be granted in or a misdemeanour, punishable by a fine in the amount between €5,000 the criminal procedure. and €10,000, or in the case of offences of a particularly serious nature A fine of at least €50,000 and up to 200 times the amount of damages between €15,000 and €30,000. caused or illegal benefit obtained through the criminal offence may be imposed on a legal entity found liable for the criminal offence. If certain Debarment stipulated conditions are met, also the winding-up of a legal person and 24 Is debarment from government procurement procedures the prohibition of a specific commercial activity of not less than six months automatic, available as a discretionary sanction, or not and no more than five years as a safety measure may be ordered pursuant available in response to cartel infringements? to provisions of the Liability of Legal Persons for Criminal Offences Act. Pursuant to the provisions and conditions of the Slovenian Public Civil and administrative sanctions Procurement Act, a contracting public authority shall exclude an under- 20 What civil or administrative sanctions are there for cartel taking from the public procurement procedure if the undertaking or the activity? member of administrative, management or supervisory board or any person having representative, management or supervisory powers is Pursuant to the Slovenian Act on Prevention of the Restriction of convicted for the criminal offence of illegal restriction of competition Competition (the Competition Act), a fine for a minor offence of up to 10 under article 225 of the Criminal Code, unless the award of the contract per cent of the annual turnover of the undertaking in the preceding busi- is justified with reasons of significant importance related to the public ness year shall be imposed on a legal entity, entrepreneur or individual interest. The decision on debarment lies with the contracting authority. who performs economic activity in contravention of the prohibition of Complex provisions of the Slovenian Public Procurement Act regulate restrictive agreements in article 6 of the Competition Act and article 101 the exact conditions for this measure. of the Treaty on the Functioning of the European Union (TFEU). A fine between €5,000 and €10,000, or in the case of offences of a particularly Parallel proceedings serious nature between €15,000 and €30,000, shall be imposed on the 25 Where possible sanctions for cartel activity include criminal responsible person of a legal entity or of an entrepreneur. and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the Guidelines for sanction levels choice of which sanction to pursue made? 21 Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty In Slovenia, penalties imposed by the Agency have the nature of minor levels normally established? What are the main aggravating offence penalties. A minor offence procedure before the Agency may not and mitigating factors that are considered? be initiated against a person or an entity that has already been finally sentenced for the criminal offence concerning the same conduct. On the Since there are no special guidelines for the calculation of the fine, the other hand, the finality of the penalty in the minor offence procedure Agency is only obliged to act in accordance with the provision of the does not automatically exclude the initiation of a criminal procedure. Minor Offences Act, which apply to minor offences in general. This Act The Criminal Code regulates the inclusion of fines for minor offences in stipulates the following aggravating and mitigating circumstances that criminal sentences. are relevant for determining the level of the fine: • the level of responsibility of the perpetrator; • the motive for the infringement; • circumstances in which the minor offence was committed; • previous convictions; and • the perpetrator’s behaviour after the minor offence, especially if the perpetrator compensates for the damage.

208 Cartel Regulation 2021 © Law Business Research 2020 Odvetniska druzba Zdolsek Slovenia

PRIVATE RIGHTS OF ACTION The Collective Actions Act entered into force on 21 April 2018; however, class actions can also be filed in cases of mass harm situa- Private damage claims tions that occurred prior to the aforementioned date. So far only two 26 Are private damage claims available for direct and indirect collective actions have been filed in Slovenia and neither of them has a purchasers? Do purchasers that acquired the affected basis in competition law. product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the COOPERATING PARTIES prices they paid (‘umbrella purchaser claims’)? What level of damages and cost awards can be recovered? Immunity 28 Is there an immunity programme? If so, what are the basic Any person who suffered harm as a consequence of a cartel infringe- elements of the programme? What is the importance of being ment may claim material damages for actual loss and loss of profit ‘first in’ to cooperate? with interest since the occurrence of the damage, according to the full compensation principle. Immaterial damages may be claimed for the A leniency programme was implemented with an amendment to the defamation of reputation or good name. Multiple damages caused by Slovenian Act on Prevention of the Restriction of Competition (the anticompetitive infringement are not foreseen in Slovenian law. Competition Act) in 2009 and the Decree on the procedure for granting Where in an action for damages the existence of a claim for damages immunity from, and reduction of, fines for offenders who are parties or the amount of compensation depends on the degree of an overcharge to cartels (Official Journal No. 112/09 and 2/14) (the Decree), which passed on to the claimant as indirect purchaser, the claimant bears the entered into force in January 2010. The Slovenian Competition Agency burden of proving the existence and the amount of such passing-on. The (the Agency) can grant either immunity from fines or a reduction of fines claimant has to prove that the defendant has committed an infringe- with a minor offence decision. ment of competition law, that the infringement of competition law has Only the offender involved in a prohibited agreement who first resulted in an overcharge for the direct purchaser of the defendant, and submits information and evidence may be granted full immunity from a that the claimant as an indirect purchaser has purchased the goods or fine, provided all the conditions mentioned below are met: services that were the object of the infringement of competition law, or • the offender fully and completely discloses his or her participation has purchased goods or services derived from or containing them. This in an alleged cartel; shall not apply where the defendant proves that the overcharge was • the offender is the first to submit information and evidence that, in not passed on. the Agency’s view, will enable an inspection in connection with the Currently there is no case law dealing with the question of the alleged cartel or the finding of an infringement of article 6 of the ‘umbrella damages’ in cartel cases. This issue would likely be addressed Competition Act or article 101 of the Treaty on the Functioning of by the courts in the context of examining the causal link between the the European Union (TFEU) in connection with the alleged cartel; cartel behaviour and the damage suffered by the claimant. It can be • the offender cooperates with the Agency throughout the procedure; expected that in addressing this issue, the national courts would follow • the offender ends his or her involvement in the cartel immedi- the case law of the European Court of Justice (ECJ). ately after the beginning of cooperation with the Agency unless for what would, in the Agency’s view, be against the interest of the Class actions inspection; and 27 Are class actions possible? If so, what is the process for such • the offender did not coerce other undertakings to join the cartel or cases? If not, what is the scope for representative or group to remain in it. actions and what is the process for such cases? The applicant that does not meet all the above-mentioned conditions In 2018, the Slovenian Collective Actions Act entered into force, intro- required to be granted full immunity from a fine may still apply for a ducing class actions and class settlement to the Slovenian legal system. reduction of the fine provided the following conditions are met: According to the express provisions of article 2 of the Act, collective • the offender provides evidence of his or her participation in the actions may be used for claims based on infringement of article 6 and 9 alleged cartel, which represents significant added value with of the Slovenian Competition Act as well as articles 101 and 102 of the respect to the evidence the Agency already possesses; Treaty on the Functioning of the European Union. • the offender cooperates with the Agency throughout the Collective actions can be filed by a senior state attorney or by a non- procedure; and profit legal person of whose activities are directly related to • the offender ends his or her involvement in the cartel immedi- the rights that have allegedly been breached. However, a class action ately after the beginning of cooperation with the Agency unless for must meet certain additional criteria in order to be approved by the what would, in the Agency’s view, be against the interest of the court. Most importantly, it must refer to the same type of claims, based inspection. on the same or at least similar factual and legal questions. Upon approving the collective action, the court will decide whether An offender meeting all the conditions needed for fine reduction and the system of inclusion or exclusion is to be used in the proceeding. In the who is the first to provide evidence will be granted a fine reduction of case of the former, every injured individual has to expressly state that he 30 to 50 per cent; an offender meeting all the conditions and who is or she wishes to take part in the class action proceeding (opt-in system), the second to provide evidence will receive a fine reduction of 20 to 30 whereas in the case of the latter, all injured individuals are automatically per cent; and other offenders meeting all the conditions for fine reduc- included unless they expressly state that they do not wish to participate tion and submitting evidence will be granted a fine reduction of up to (opt-out system). In either case, injured individuals are not formally 20 per cent. considered parties to the procedure. They are represented by the person who filed the class action and who has a legal duty to protect their inter- ests. Nevertheless, injured individuals will have the option to participate in the procedure and submit comments and evidence to the court. www.lexology.com/gtdt 209 © Law Business Research 2020 Slovenia Odvetniska druzba Zdolsek

Subsequent cooperating parties Also prior to submitting the application, an offender must not destroy, 29 Is there a formal programme providing partial leniency for falsify or conceal evidence or directly or indirectly disclose the intention parties that cooperate after an immunity application has been to submit an application to the Agency or its content. made? If so, what are the basic elements of the programme? If not, to what extent can subsequent cooperating parties Confidentiality expect to receive favourable treatment? 33 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection Subsequent cooperating parties may be charged a reduced fine if the applicable to subsequent cooperating parties? What relevant conditions are fulfilled. information will become public during the proceedings and when? Going in second 30 How is the second cooperating party treated? Is there an Pursuant to the Decree, an application shall be deemed a business ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, secret and the Agency may only disclose information and evidence from how does it operate? the application to a company under an infringement procedure after a statement of the objection has been issued in an administrative proce- In determining the level of fine reduction the Agency shall take dure. The same level of protection applies to all leniency applicants. into account: • the time of the submission of the evidence to the Agency; Settlements • the sequential order of applications; and 34 Does the investigating or prosecuting authority have the • the contribution of the submitted evidence to the finding of an ability to enter into a plea bargain, settlement, deferred infringement. prosecution agreement (or non-prosecution agreement) or other binding resolution with a party to resolve liability and A fine, laid down within the range, may not be lowered below the stipu- penalty for alleged cartel activity? What, if any, judicial or lated threshold. other oversight applies to such settlements? There are no ‘immunity plus’ or ‘amnesty plus’ options. Pursuant to the Competition Act, an undertaking against which the Approaching the authorities administrative procedure has been initiated may offer commitments 31 Are there deadlines for initiating or completing an application with a view to eliminating the circumstances leading to the likelihood for immunity or partial leniency? Are markers available and of the existence of the infringement. Commitments may be proposed what are the time limits and conditions applicable to them? until the expiry of the time limit set by the Agency for comments on the statement of objections. If, in the view of the Agency, the proposed There are no deadlines for submitting a leniency application. commitments are capable of eliminating the circumstances leading to An application for a marker is only possible in applications for the likelihood of the existence of an infringement, the Agency shall make immunity from a fine. An offender who is not in possession of informa- the offered commitments binding by adopting a decision. tion that would enable him or her to submit the complete application may apply for a marker in writing with a substantiated request on a Corporate defendant and employees form given in the Decree. The Agency may grant a marker if it considers 35 When immunity or partial leniency is granted to a corporate the application to be adequately substantiated and shall also determine defendant, how will its current and former employees be the period in which the application has to be completed to be considered treated? in the ranking order granted by the marker. An application for immunity or for a reduction of a fine, submitted by a Cooperation legal entity, an entrepreneur or an individual who performs economic 32 What is the nature, level and timing of cooperation that activity, shall also relate to his or her responsible persons unless other- is required or expected from an immunity applicant? Is wise indicated in the application. On the other hand, an application there any difference in the requirements or expectations submitted by a responsible person shall not relate to a legal entity, an for subsequent cooperating parties that are seeking partial entrepreneur or an individual who performs economic activity unless leniency? indicated otherwise in the application.

An offender who applies for leniency, irrespective of the sequential Dealing with the enforcement agency order, is obliged to cooperate with the Agency from the time of submit- 36 What are the practical steps for an immunity applicant ting an application and throughout the administrative and minor or subsequent cooperating party in dealing with the offences procedures. It shall promptly: enforcement agency? • provide the Agency with all relevant information and evidence relating to the alleged cartel, with all the information that may An immunity applicant may submit an application to the Agency either contribute to the establishment of the facts; in writing (by mail, fax or personally) with three copies (one original • ensure the cooperation of employees and members of manage- and two copies) or by making an oral statement on the record at the ment or supervisory bodies; and Agency premises. Forms for application are provided in the Decree and • not destroy, falsify or conceal information or evidence, and not are also available on the Agency’s website. The application must specify disclose the fact that the application has been submitted or any of whether the application should be considered for immunity only or for its content before the Agency has issued a statement of objections a reduction of fine, or both. After receiving the application, the Agency in an administrative procedure without written permission from shall inform the applicant whether the application complies with the the Agency. legal conditions for immunity from or a reduction of a fine and about his or her duty to cooperate. If the offender fulfils all the conditions, the

210 Cartel Regulation 2021 © Law Business Research 2020 Odvetniska druzba Zdolsek Slovenia

Agency shall grant immunity from or a reduction of a fine with a minor offences decision.

DEFENDING A CASE

Disclosure 37 What information or evidence is disclosed to a defendant by the enforcement authorities? Irena Jurca [email protected] Parties in the procedure before the Slovenian Competition Agency (the Agency) have the right to review the documents of the case Katja Zdolšek file throughout the procedure after the issuing of the order on the [email protected] commencement of the procedure unless the director of the Agency Stojan Zdolšek determines this would be against the interests of the investigation and [email protected] postpones the right to inspection of documents with an order (however, not for longer than to the service of a statement of objections). Miklošičeva cesta 5 Parties may not review or make copies of the internal Agency’s 1000 Ljubljana documents relating to the case file, including correspondence between Slovenia the Agency and the European Commission or competition protec- Tel: +386 1 3078 300 tion authorities of other EU member states, confidential information, Fax: +386 1 3078 310 including business secrets, information relating to confidential sources, www.zdolsek.com minutes of consultation and voting, and draft decisions. The Agency may disclose information that constitutes a business secret to the undertaking against which the procedure has been initi- ated if it deems that disclosure, owing to the right of defence, might Taxes objectively prevail over the interests of protecting such information as a 41 Are fines or other penalties tax-deductible? Are private business secret. A decision adopted by the Agency may not be based on damages payments tax-deductible? facts and evidence in respect of which the undertaking against which the procedure has been initiated has not been given the possibility to reply. In accordance with the Slovenian Corporate Income Tax Act, all expendi- tures that are not in conformity with normal business practice, including Representing employees penalties imposed by responsible authorities, represent non-recognised 38 May counsel represent employees under investigation in expenditure. addition to the corporation that employs them? When should a present or past employee be advised to obtain independent International double jeopardy legal advice or representation? 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In Counsel may represent both the corporation and employees under private damage claims, is overlapping liability for damages in investigation in minor offence administrative proceedings before the other jurisdictions taken into account? Agency, provided that there is no conflict of interest. Conflicts of interest may especially exist in situations where an employee committed an act The possibility of taking into account penalties imposed in other jurisdic- following an order by a superior responsible person or by the manage- tions in the minor offence procedure before the Agency is not foreseen ment or supervisory board of an undertaking. An employee is therefore in the Competition Act. advised to seek independent legal advice as early as possible in all situ- ations where it is possible that his or her defence is not aligned with the Getting the fine down defence of the undertaking or where his or her individual responsibility 43 What is the optimal way in which to get the fine down? may be excluded. The optimal way to achieve immunity from or a reduction of the fine is Multiple corporate defendants by submitting a leniency application as soon as possible. Unless it is 39 May counsel represent multiple corporate defendants? Does considered one of the mitigating circumstances for the assessment of it depend on whether they are affiliated? the fine, pursuant to the Minor Offence Act, a compliance programme by itself is not foreseen as a circumstance affecting the level of the fine Although it is not per se prohibited that more corporate defendants are under Slovenian law. represented by the same counsel in the proceedings before the Agency, it is not very likely owing to the possible conflict of interest. UPDATE AND TRENDS

Payment of penalties and legal costs Recent cases 40 May a corporation pay the legal penalties imposed on its 44 What were the key cases, judgments and other developments employees and their legal costs? of the past year?

There is no explicit statutory provision prohibiting payment of legal No updates at this time. penalties issued on its employees by the corporation in the Slovenian Act on Prevention of the Restriction of Competition (the Competition Act), but certain tax and justification issues regarding such expenses may arise. www.lexology.com/gtdt 211 © Law Business Research 2020 Slovenia Odvetniska druzba Zdolsek

Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

See www.lexology.com/gtdt.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

See www.lexology.com/gtdt.

* The information in this chapter was verified between October and November 2019.

212 Cartel Regulation 2021 © Law Business Research 2020 South Korea

Hoil Yoon, Chang Ho Kum and Yang Jin Park Yoon & Yang LLC

LEGISLATION AND INSTITUTIONS • supplement statutory presumptions so that exchange of informa- tion may be regulated as a cartel; Relevant legislation • simplify and clarify overlapping requirements for permitting cartel 1 What is the relevant legislation? behaviour; and • double the cap for administrative surcharges. The relevant legislation is the Monopoly Regulation and Fair Trade Act (MRFTA). Substantive law 4 What is the substantive law on cartels in the jurisdiction? Relevant institutions 2 Which authority investigates cartel matters? Is there Article 19(1) of the MRFTA generally prohibits ‘any agreement’ between a separate prosecution authority? Are cartel matters or among competitors that unreasonably restrains competition. Specific adjudicated or determined by the enforcement agency, a types of conducts where agreements among undertakings are prohib- separate tribunal or the courts? ited under the above provision are as follows: 1 fix, maintain or alter prices; In general, the Korea Fair Trade Commission (KFTC) enforces the law. 2 determine the terms and conditions for trade in goods or services The KFTC is an independent administrative branch of the Korean govern- or for payment of prices or compensation thereof; ment responsible for administrative investigations, prosecution and 3 restrict the production, shipment, transportation or the trading of adjudication. It has nine commissioners, consisting of a chair, a vice-chair, goods or services; three standing commissioners and four non-standing commissioners. 4 restrict the territory of trade or customers; Within the Secretariat of the KFTC, the Cartel Investigation Bureau is 5 hinder or restrict the establishment or expansion of facilities or primarily responsible for the administrative investigation and prosecu- installation of equipment necessary for the manufacturing of prod- tion of cartels. As for criminal prosecution, upon receipt of a criminal ucts or the rendering of services; referral from the KFTC, only then does the Prosecutors’ Office have the 6 restrict the types or specifications of goods at the time of produc- authority to investigate and prosecute cartels for criminal punishment. tion or trade thereof; Meanwhile, article 315 of the Korean Criminal Code and article 95 of 7 establish a corporation or the like with other undertakings to jointly the Framework Act on the Construction Industry provide for the offence of conduct or manage important parts of businesses; bid rigging, which may be prosecuted by the Prosecutors’ Office without 8 decide the successful bidder, successful auctioneer, bidding price, regard to receiving any criminal referral from the KFTC. Consequently, highest price or contract price, and other matters prescribed by the both administrative sanctions and criminal sanctions may be imposed for Enforcement Decree of the MRFTA; or the same conduct. Further, the prosecutor may directly commence an 9 practically restrict competition in a particular business area by investigation and indict even without a criminal referral from the KFTC in means of interfering or restricting the activities or contents of cases of objectively obvious and serious collaborative acts (ie, hardcore business by other undertakings (including the undertaking that cartel behaviour, including price-fixing, output restriction cartels, market has conducted the activity) other than the acts referred to in (1) allocation cartels and bid rigging) among unreasonable collaborative acts. to (8) above.

Changes In theory, cartels are not illegal per se; to be illegal, cartel behaviour 3 Have there been any recent changes, or proposals for change, must be unreasonably anticompetitive in a relevant market. In prac- to the regime? tice, however, the illegality of hardcore cartels is proven without much evidence of anticompetitiveness. Meanwhile, an agreement among There have not been any significant changes to the regime regarding undertakings is required to constitute illegal cartel activities, and, not cartels in the past year. only explicit agreements but also implicit agreements are included in The MRFTA amendment bill which the government submitted to the such agreement. National Assembly in November 2018 was automatically repealed due Moreover, according to article 19(5) of the MRFTA, it may be to the expiration of the term of the 20th National Assembly. However, in assumed that there is an agreement among undertakings where August 2020, the government resubmitted an MRFTA amendment bill there is a significant possibility that such undertakings collaboratively that is effectively the same as the former bill. The major amendments engaged in the applicable act. In this case, if there is proof of direct related to cartels are as follows: or indirect contact or information exchange among undertakings, • abolish the KFTC’s exclusive complaint right for hardcore cartel this may serve as circumstantial evidence that enforces the above behaviour (eg, price-fixing, market allocation and bid rigging); assumption. www.lexology.com/gtdt 213 © Law Business Research 2020 South Korea Yoon & Yang LLC

For reference, the recently proposed amendment the MRFTA also (ie, compressor) were sanctioned by applying the extraterritorial appli- explicitly prescribes that information exchange, which in the past was cation provision. While the entire agreements were formed in Japan, a subject of controversy on whether it constitutes a cartel, is one type the KFTC deemed that the Korean market was directly affected because of cartel. the products subject to the cartel were supplied to Korean companies. The MRFTA provides for both administrative sanctions (such as Article 2–2 of the MRFTA, which took effect on 1 April 2005, administrative fines) and criminal prosecution. The KFTC will file a expressly provides for extraterritorial application of the MRFTA. criminal referral with the Prosecutors’ Office if the violations are so The Korean Supreme Court is of the position that cases where objectively obvious and serious as to greatly restrain competition. If, ‘activities have an effect on the Korean market’ under article 2–2 of the however, the MRFTA amendment bill passes the resolution stage in the MRFTA should be limited to cases where the applicable activity that plenary session of the National Assembly, the KFTC’s right to be the occurred outside of Korea has a direct, significant and reasonably fore- exclusive complaint regarding hardcore cartel actions, such as price- seeable effect on the Korean market. However, if the Korean market is fixing and bid rigging, will likely be abolished. included in the subject of a collaborative agreement to restrain competi- tion between undertakings outside of Korea, then such foreign activity Joint ventures and strategic alliances (ie, the agreement to restrain competition) is subject to the application 5 To what extent are joint ventures and strategic alliances of article 19(1) of the MRFTA since such agreement has an effect on the potentially subject to the cartel laws? Korean market unless other special circumstances exist.

The MRFTA regulates joint ventures or strategic alliances by treating Export cartels them as cartels if they unreasonably restrain competition (article 19(1) 8 Is there an exemption or defence for conduct that only affects (vii) of the MRFTA). However, joint ventures and strategic alliances are customers or other parties outside the jurisdiction? not illegal if they aim to achieve a justifiable business purpose and increase efficiency. Therefore, the business purpose, scope and effect of Unlike jurisdictions that explicitly prescribe a waiver provision for the joint venture or strategic alliance are comprehensively considered export cartels (eg, the United States), Korea does not have a separate in determining whether they unreasonable restrain competition. For waiver provision for export cartels. example, through a joint venture at the R&D level, development of new products or technology, which a single company alone cannot achieve, Industry-specific provisions may be done by combining the know-how or assets of each entity and 9 Are there any industry-specific infringements? Are there any pro-competitive effects, such as cost reductions, may be created. On the industry-specific defences or exemptions? other hand, joint ventures at the production level are more likely to be regulated than R&D-level joint ventures, as engaging in anticompetitive There are some limited statutory exemptions from the MRFTA that apply conduct such as price-fixing through production facility combination or to specific activities and that are provided for in the relevant statutes for exclusion of competitiors is easier in production-level joint ventures. specific industries, such as export and import, small businesses, marine or air transport, and agriculture. APPLICATION OF THE LAW AND JURISDICTIONAL REACH Government-approved conduct Application of the law 10 Is there a defence or exemption for state actions, 6 Does the law apply to individuals, corporations and other government-approved activity or regulated conduct? entities? In principle, the same cartel regulations apply to government-regulated The MRFTA applies to an ‘enterprise’, which is defined as entities conducts as ordinary cases that do not involve government-regulated conducting manufacturing business, service business or other busi- conducts. However, the application of the MRFTA is excluded where ness. Thus, irrespective of the type of business and irrespective of the administrative agencies are granted by other laws with the specific forms of these entities (such as corporations) and whether they have power to issue administrative dispositions to undertakings regarding profit-making purpose or not, entities that continuously and repetitively competition factors, such as prices, and undertakings agreed on prices, provide economic benefits based on their own calculations and receive etc, based on such administrative disposition; and where other laws considerations therefor may constitute an ‘enterprise’ under the MRFTA. stipulate that administrative agencies may provide administrative guid- ance to undertakings in regard to engaging in cartel activities that are Extraterritoriality prohibited under the MRFTA and the administrative agencies induced 7 Does the regime apply to conduct that takes place outside the the agreement among undertakings by providing administrative guid- jurisdiction (including indirect sales into the jurisdiction)? If ance in compliance with the relevant provisions of such laws and, as a so, on what jurisdictional basis? result, the undertakings reached an agreement within the scope of such administrative guidance. The law applies to conduct that takes place outside Korea if it has an effect on the Korean market. For example, in 2002 and 2003, the Korea INVESTIGATIONS Fair Trade Commission (KFTC) imposed administrative fines on the foreign companies that participated in the Graphite Electrodes and Steps in an investigation Vitamins cartels, respectively. In addition, in December 2008, the KFTC 11 What are the typical steps in an investigation? imposed administrative fines on the four companies that participated in the Asian paper cartel following an investigation that was triggered by In the Korea Fair Trade Commission (KFTC) proceedings, before an adju- a leniency application and conducted in cooperation with the Australian dication or decision is made, there are two stages: an investigation and a Competition and Consumer Commission. deliberation. In an investigation, the KFTC typically conducts an on-site Recently, in November 2016, two Japanese companies that inspection of the suspected violators, seizes or requests documents, engaged in bid rigging practices regarding an automotive component questions witnesses and requests information from the suspected

214 Cartel Regulation 2021 © Law Business Research 2020 Yoon & Yang LLC South Korea violators. The KFTC reviews information and documents obtained and, if INTERNATIONAL COOPERATION appropriate, issues an examiner’s report against the suspected parties. The parties are then allowed to examine the documents attached to the Inter-agency cooperation examiner’s report, and to respond to it in writing and at an oral hearing. 13 Is there cooperation with authorities in other jurisdictions? If While respondents have three weeks to provide a written response so, what is the legal basis for, and extent of, such cooperation? to the examiner’s report (two weeks for a case handled by a subcom- mittee), if the parent company of the respondent is located abroad or Korea cooperates with several other countries either through cooperation the contents of the case are complex, the period to submit the response agreements (eg, with the European Union) or memoranda of under- may be extended. The KFTC will hold the hearing within 30 days after it standing (eg, with Brazil, China, Japan and the United States). Although receives the written responses from the respondents (or, if a response the level of cooperation in the past has been rather limited, there has is not submitted, 30 days from the date when the deadline for submis- been growing cooperation recently with these countries in cartel cases sion has expired). At the end of a hearing, a final decision is made by the (eg, by conducting coordinated dawn raids in the Auto Parts, Air Cargo, full college of the KFTC commissioners. After making a final decision LCD, CRT, Marine Hose and Electric Cable investigations, or through internally, the KFTC issues a written decision several weeks thereafter informal exchanges of information in the investigation of individual cases, or, in a complex case, several months thereafter. often with waivers obtained from cooperating companies). Korea actively It is difficult to generalise about the timing of cartel cases. participates in the OECD Competition Committee. In addition, Korea has However, from the initial investigation to final disposition, they usually actively participated in the International Competition Network since its take at least one year and, more often, a few years. Once the KFTC has creation in 2001. Korea has also attended the annual East Asia Top-level commenced an investigation of alleged illegal activities, it cannot issue Officials’ Meeting on Competition Policy from 2005. corrective orders or impose administrative fines after five years have passed from the commencement of such investigation and, accordingly, Interplay between jurisdictions the final disposition must be made within five years from the date of the 14 Which jurisdictions have significant interplay with your initial investigation. jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity Investigative powers of the authorities in cross-border cases in your jurisdiction? 12 What investigative powers do the authorities have? Is court approval required to invoke these powers? Cartel investigations in the US and the EU may increasingly lead the Korea Fair Trade Commission (KFTC) launching investigations in Korea Under article 50 of the MRFTA, the KFTC has broad administrative (eg, through coordinated dawn raids upon exchanges of information, as investigative powers which is essentially based upon the voluntary in the Auto Parts, Air Cargo, LCD, CRT, Marine Hose and Electric Cable cooperation of the investigated parties (including suspected violators investigations, or as in the Graphite Electrodes and Vitamins cartels). and witnesses). The KFTC may request the suspected violators and witnesses, etc. to submit or produce information, documents or other CARTEL PROCEEDINGS materials (including computer records and electronic data), oral state- ments or written answers to questions. The KFTC may appoint expert Decisions witnesses and request them to give their opinions. The KFTC may seize 15 How is a cartel proceeding adjudicated or determined? any documents or materials so produced. The KFTC officials may enter the business premises of suspected The Korea Fair Trade Commission (KFTC) both investigates and adju- violators, examine books and records and other materials belonging dicates on cartel matters. Following an investigation by the officials of to them, request the production of such books, records or materials, the KFTC Secretariat, the full college of commissioners (except in minor and request oral statements. The KFTC may seize any documents or matters on which the decision may be made by a chamber of three materials so produced. No court approval is required for the above commissioners) begins a deliberation, which consists of at least an oral investigation procedures. hearing. At the end of the deliberation, the decision is made by the full Anyone who obstructs the KFTC investigations or refuses to college of the KFTC commissioners. comply with any of the KFTC’s requests mentioned above is subject to administrative fines or criminal sanctions under the 22 June 2012 Burden of proof amendment to the MRFTA. Prior to the amendment, only civil fines 16 Which party has the burden of proof? What is the level of proof were imposed for any interference with KFTC investigations; however, required? the amendment provides for criminal sanctions (ie, imprisonment of up to three years or a criminal fine of up to 200 million Korean won, or The KFTC has the burden of proof in the KFTC proceedings. Until recently, both) for refusing, obstructing or evading a KFTC investigation through article 19(5) of the MRFTA provided, in effect, that once a unilateral action means such as a verbal or physical assault or intentionally delaying or parallel behaviour is established, a rebuttable presumption shall be or obstructing the entry of KFTC officials onto the business premises. created that an agreement existed, thereby shifting the burden of proof However, the KFTC officials have no power of forcible entry or search concerning the existence of an agreement onto respondents. The validity of and seizure. Also, KFTC officials have no general surveillance powers the presumption has been disputed, and thus, effective from 4 November (including wiretapping). 2007, article 19(5) was amended to provide for a presumption only when As for criminal investigations by the Prosecutors’ Office, upon certain circumstantial evidence of a meeting of the minds exists. receipt of a criminal referral from the KFTC, as in other criminal cases, It may be said that the standard regarding the burden of proof the Prosecutors’ Office has broad powers to investigate, such as arrest that the KFTC must establish regarding the existence of collaborative or search and seizure. In order for prosecutors to conduct investiga- acts is ‘highly probable’. While it is difficult to clearly define the appli- tions including an arrest and search and seizure, warrants issued by cable degree for ‘highly probable’ under Anglo-American law, it may be the court are required. viewed as requiring a standard that is higher than the balance of prob- abilities standard. www.lexology.com/gtdt 215 © Law Business Research 2020 South Korea Yoon & Yang LLC

In criminal proceedings, the burden of proof falls on the Prosecutors’ Generally, litigation procedures at the Seoul High Court take Office. The prosecutor must establish the case through evidence that has about six months to two years. From the Seoul High Court, either the evidentiary value to the degree that there is no reasonable doubt in the KFTC or the respondents may lodge an appeal to the Supreme Court; judge’s mind regarding the facts of the charges. This may be understood such appeal can be made within two weeks from the date of receiving as requiring evidentiary value similar to that of beyond a reason- the decision of the Seoul High Court. While a panel composed of four able doubt. Supreme Court decides cases at the Supreme Court, in the event that such panel cannot reach a unanimous decision or there is a Circumstantial evidence need to change a previous Supreme Court decision, the determination 17 Can an infringement be established by using circumstantial is made by a full panel, which comprises more than two-thirds of the evidence without direct evidence of the actual agreement? 14 Supreme Court justices. The time it takes for the Supreme Court to render a decision varies for each case, and it is difficult to uniformly According to article 19(1) of the MRFTA, an ‘unreasonable collaborative indicate such time frame. act’ is established only when an ‘anticompetitive agreement’ exists. Here, ‘an agreement’ includes not only an ‘explicit agreement’, but also an SANCTIONS ‘implicit agreement’, such as a tacit understanding between enterprises. In particular, according to article 19(5) of the MRFTA, even in the absence Criminal sanctions of direct evidence establishing the existence of agreement between enter- 19 What, if any, criminal sanctions are there for cartel activity? prises, when a substantial probability exists to assume the presence of the relevant collaborative acts by the enterprises in light of the relevant Corporate violators are subject to a criminal fine of up to 200 million won. circumstances, the existence of an agreement may be legally presumed. Individuals are subject to imprisonment of up to 3 years or a criminal The Review Guidelines on Unreasonable Collaborative Acts of the KFTC fine of up to 200 million won, or both. Under the Monopoly Regulation offer the following items as examples of circumstantial evidence for and Fair Trade Act (MRFTA), the Korea Fair Trade Commission (KFTC) establishing the legal presumption under article 19(5) of the MRFTA: must first make a referral to the Prosecutor’s Office for a party to be • when evidence of direct or indirect communication or exchange of indicted for illegal acts where criminal sanctions may be imposed. information is present; Meanwhile, under the 16 July 2013 amendments to the MRFTA, which • when a joint action is deemed to be the sole mechanism to contribute became effective on 17 January 2014, the KFTC’s obligatory referral to the interests of the relevant enterprises and an individual action obligations have been strengthened. Prior to the amendments, only the is found to be adverse to each of the relevant enterprises’ interests; prosecutor general could make a request for referral to the KFTC. • the conformity of the relevant enterprises’ conducts cannot be According to the amendments to the MRFTA, the chair of the explained as a consequence of the market status; and Board of Audit, the administrator of the Public Procurement Service or • when the conformity of conducts would be difficult without an agree- the administrator of the Ministry of SMEs and Start-ups may make a ment in light of the relevant industry structure. request to the KFTC to refer a case to the Prosecutor’s Office. If such request for referral is made, the KFTC is obliged to make such referral. Therefore, in theory, even without direct evidence for the existence of The amendments to the MRFTA also explicitly recognise an exception to an agreement, an unreasonable collaborative act may be established referral in the case of cartel activity leniency applicants. through circumstantial evidence. However, review of the history of The KFTC is increasingly filing criminal referrals with the the KFTC’s handling of cases indicates that majority of the cases were Prosecutors’ Office against corporations as well as individuals. Upon supported by specific or direct evidence, such as ‘witness statements by investigation and indictment by the Prosecutors’ Office, in most cases cartelists’, collected through the leniency programme and many have the courts imposed only criminal fines (rather than imprisonment) on applied article 19(1) rather than article 19(5) of the MRFTA. For reference, individuals as well as corporations. To date, this trend appears to be in July 2016, with respect to the case concerning suspected cartel for CD continuing. In a small number of cases, however, the courts imposed interest rate by the banks, the KFTC found several items of circumstantial imprisonment on individuals with or without a suspension of execution. evidence. However, owing to the absence of direct evidence proving the The number of criminal referrals made per year since 2007 are existence of an agreement, the KFTC had concluded the aforementioned as follows: case by rendering a non-violation decision, despite an investigation span- • 2007: 7 criminal referrals; ning four years, on the grounds that it is difficult to substantiate the • 2008: 5 criminal referrals; existence of an unreasonable collaborative act. • 2009: 5 criminal referrals; • 2010: 1 criminal referrals; Appeal process • 2011: 8 criminal referrals; 18 What is the appeal process? • 2012: 2 criminal referrals; • 2013: 12 criminal referrals; The KFTC’s decisions may be reconsidered by the full college of commis- • 2014: 36 criminal referrals; sioners upon application by respondents. The respondents may object to • 2015: 9 criminal referrals; the KFTC’s decision within 30 days from receipt of the written decision • 2016: 22 criminal referrals; from the KFTC. The respondents may also appeal the KFTC’s decisions • 2017: 27 criminal referrals; to the Seoul High Court. The KFTC’s decisions made upon reconsidera- • 2018: 44 criminal referrals; tion may be appealed only to the Seoul High Court by the respondents. • 2019: 19 criminal referrals; and The respondents may appeal to the Seoul High Court within 30 days • 2020 (to August): 2 criminal referrals. from receipt of the written decision from the KFTC or from the receipt of the decision on reconsideration. The Seoul High Court has exclusive jurisdiction to review the legality of the KFTC’s decision, including the amount of any administrative fines imposed, through a panel composed of three judges.

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Civil and administrative sanctions • 2020 (to July): 74 cartel cases resulting in a guilty verdict, for which 20 What civil or administrative sanctions are there for cartel fines totalling 82,659 million Korean won were imposed. activity? Guidelines for sanction levels The KFTC can impose administrative fines against corporate violators 21 Do fining or sentencing principles or guidelines exist? If yes, that engaged in cartels of up to 10 per cent of the relevant sales and, are they binding on the adjudicator? If no, how are penalty if there are no sales, an amount of up to 2 billion won. ‘Relevant sales’ levels normally established? What are the main aggravating refers to the total revenue generated during the period of the cartel with and mitigating factors that are considered? respect to the products or services directly or indirectly affected by the cartel. Corporate violators are also subject to a cease-and-desist order The KFTC’s Notification on Detailed Standards Regarding Imposition of and other appropriate administrative corrective orders. While in some Administrative Fines is the guideline on the imposition of administrative cases, only a corrective order is issued regarding cartel activities, in most fines and, as an administrative regulation, it has binding force internally cases an administrative fine is imposed along with the corrective order. at the KFTC. Administrative fines for unreasonable collaborative acts There are no civil sanctions that may be pursued by the government. are calculated by multiplying the imposition rate by the degree of viola- The amount of administrative fines that are imposed on cartel tion depending on the severity of violations (0.5 per cent to 10 per cent) cases is continuously increasing. Some of the recent examples of cartel with the total revenue generated during the period the cartel operated cases where a large amount of administrative fine was imposed are: with respect to products or services directly or indirectly affected by • the Liquefied Petroleum Gas case (2009); the cartel (‘relevant sales’). The severity of violations may be classi- • the Refineries case (2011); fied into very ‘severe’, ‘severe’ or ‘less severe’ violations by considering • the Life Insurance case (2011); the details of violation (eg, whether there was restraint on competi- • the Steel Sheet case (2012); and tion and whether monitoring or sanction measures were prepared and • the Honam Express Railway Construction Bid Rigging case (2014). undertaken to implement the agreement) and extent of violation (eg, participating enterprise’s market shares in the relevant market, rele- During 1981 to 2001, there were 359 cartel cases that resulted in vant sales, scope of unreasonable gain and damage and regional scope guilty or pleas. The average total of fines issued for each of of the effect of the violation). those years was 22,187 million Korean won. The total number of guilty Key factors for an increase in administrative fines include: verdicts and fines in subsequent years were: • if the statutory violation was repeated and was subject to the • 2002: 47 cartel cases resulting in a guilty verdict, for which fines KFTC’s measures in the past five years, and if the latter, the totalling 53,109 million Korean won were imposed; number of times; • 2003: 23 cartel cases resulting in a guilty verdict, for which fines • if the statutory violation period is extensive; and totalling 109,838 million Korean won were imposed; • if other enterprises that did not participate in the statutory violation • 2004: 35 cartel cases resulting in a guilty verdict, for which fines were retaliated against. totalling 29,184 million Korean won were imposed; Key factors for reduction in administrative fines include: • 2005: 46 cartel cases resulting in a guilty verdict, for which fines • where there was agreement on collaborative act, but such agree- totalling 249,329 million Korean won were imposed; ment was not implemented; • 2006: 45 cartel cases resulting in a guilty verdict, for which fines • cooperation in the KFTC investigation; and totalling 110,544 million Korean won were imposed; • voluntary correction of the statutory violation (here, voluntary • 2007: 44 cartel cases resulting in a guilty verdict, for which fines violation should be beyond simply discontinuing the violation, but totalling 307,042 million Korean won were imposed; rather it should involve an affirmative removal of any effect caused • 2008: 65 cartel cases resulting in a guilty verdict, for which fines by the violation (ie, price reduction)). totalling 197,479 million Korean won were imposed; • 2009: 61 cartel cases resulting in a guilty verdict, for which fines The KFTC may make a criminal referral of a violator to the Prosecutors’ totalling 52,932 million Korean won were imposed; Office, and has prepared criminal referral guidelines that stipulate such • 2010: 62 cartel cases resulting in a guilty verdict, for which fines referral matters. Under the criminal referral guidelines, penalty points totalling 585,822 million Korean won were imposed; are assigned to the violation depending on the specific type of violation • 2011: 71 cartel cases resulting in a guilty verdict, for which fines and severity of the violation, and if the total penalty points exceed a totalling 577,902 million Korean won were imposed; certain level, the violator shall be subject to such referral. For example, • 2012: 41 cartel cases resulting in a guilty verdict, for which fines in case of cartels, high penalty points are assigned to hardcore cartels totalling 398,866 million Korean won were imposed; (ie, price-fixing, output restriction cartels, market allocation cartels and • 2013: 46 cartel cases resulting in a guilty verdict, for which fines bid rigging). With respect to the severity of violation, higher penalty totalling 364,731 million Korean won were imposed; points would be assigned the higher the total market share of cartel • 2014: 76 cartel cases resulting in a guilty verdict, for which fines participants; the wider the area affected by the cartel (ie, geographic totalling 769,428 million Korean won were imposed; scope); the more coercive the participation in the cartel; and longer the • 2015: 88 cartel cases resulting in a guilty verdict, for which fines cartel period are. The total penalty points would be calculated pursuant totalling 504,919 million Korean won were imposed; to a certain formula, and if the penalty points for the violator is 1.8 points • 2016: 64 cartel cases resulting in a guilty verdict, for which fines or more, the violator would be subject to referral. The referral guide- totalling 756,040 million Korean won were imposed; lines stipulate the criteria for calculating penalty points for enterprises • 2017: 69 cartel cases resulting in a guilty verdict, for which fines as well as individuals. totalling 229,439 million Korean won were imposed; • 2018: 157 cartel cases resulting in a guilty verdict, for which fines totalling were imposed of 237,950 million Korean won; • 2019: 64 cartel cases resulting in a guilty verdict, for which fines totalling 92,097 million Korean won were imposed; and www.lexology.com/gtdt 217 © Law Business Research 2020 South Korea Yoon & Yang LLC

Compliance programmes referral with the Prosecutors’ Office if it determines that a violation of 22 Are sanctions reduced if the organisation had a compliance the MRFTA is objectively so obvious and serious as to greatly restrain programme in place at the time of the infringement? competition, and the prosecutor general may request the KFTC to file a criminal referral with the Prosecutors’ Office when he or she believes The KFTC established and operates ‘Rules on Operation of Fair Trade that a violation of the MRFTA is objectively so obvious and serious at to Compliance Programs, Offering of Incentives, etc’. According to said greatly restrain competition. However, as mentioned above, according Rules, if an organisation receives a certain grade or higher for its compli- to the bill of amendment to the MRFTA pending for legislation, with ance programme from an agency designated by the Korea Fair Trade respect to hardcore cartels such as price-fixing, output restriction Mediation Agency or ageny designated by the KFTC (which does not cartels, market allocation cartels and bid rigging, the Prosecutors’ currently exist), it may be exempt from the duty to officially announce Office may commence an investigation and indict without a criminal the fact that it is subject to the KFTC’s corrective order or such duty may referral from the KFTC. be attenuated. In addition, article 315 of the Korean Criminal Code and article • Evaluation of ‘AAA (Best)’: exempt from the duty to publicly announce 95 of the Framework Act on the Construction Industry provide for the that the organisation is subject to KFTC’s corrective order. offence of bid rigging, which may be prosecuted by the Prosecutors’ • Evaluation of ‘AA (Outstanding) or A (Better than Most)’: reduc- Office even without regard to receiving any criminal referral from the tion of the size of posting of public announcement in publications KFTC. Consequently, both administrative sanctions and criminal sanc- and the number of publications in which such announcement will tions may be pursued in respect of the same conduct. be published by one level, and a reduction of the period of the announcement at the business’s website and on electronic media. PRIVATE RIGHTS OF ACTION

Director disqualification Private damage claims 23 Are individuals involved in cartel activity subject to orders 26 Are private damage claims available for direct and indirect prohibiting them from serving as corporate directors or purchasers? Do purchasers that acquired the affected officers? product from non-cartel members also have the ability to bring claims based on alleged parallel increases in the The MRFTA and the Korean Commercial Code do not contain provisions prices they paid (‘umbrella purchaser claims’)? What level of restricting individual employees involved in unreasonable collaborative damages and cost awards can be recovered? acts from serving as corporate directors or officers. However, individual employees who participated in a leading manner in unreasonable collab- Article 56 of the Monopoly Regulation and Fair Trade Act (MRFTA) orative acts may be subject to criminal punishment if the KFTC makes provides for awarding damages to a person who has suffered from a a criminal referral to the Prosecutors’ Office. In the case of companies violation of the MRFTA, such as cartel behaviour, unless the defendant under strict supervision for establishment and operation, such as finan- companies prove that the violation was neither intentional nor negli- cial institutions and public companies, the individual employees’ history gent. When the amount of damages is difficult to prove with specific of criminal punishment is stated as a ground for disqualification from evidence, the court may award an amount of damages on the basis of serving as corporate directors or officers. overall evidence in the proceedings. Indirect purchasers and purchasers that acquired the affected product from non-cartel members may bring Debarment a damages lawsuit but may, depending on the case, have difficulty in 24 Is debarment from government procurement procedures establishing causation and the amount of damages. automatic, available as a discretionary sanction, or not According to the recent amendment to the MRFTA, a cartelist is available in response to cartel infringements? stipulated to be liable up to treble the damages that actually occurred. However, the amendment also prescribes that a leniency applicant could In case of a party engaging in a cartel regarding government or public be found liable only up to the actual damages occurred. In addition, the institution procurement, such party may be restricted from participating litigation costs are borne by the unsuccessful party, and the successful in a tender held by the government or public institution for a period of party may make a request for payment of the stamp fee, delivery fee and up to two years. The head of the relevant government or public institu- a portion of the attorney fees (this is designated as a certain percentage tion has the authority to restrict such participation. of the value of the litigation under the law) to the unsuccessful party. Currently, the Act on Contracts to Which the State is a Party Meanwhile, a lawsuit for compensation of damages is not limited to only restricts the right of a party to participate in tenders for two years in the direct purchasers; indirect purchasers and umbrella purchasers are case where the party led the cartel and was the successful bidder; for also permitted to raise such claims. one year in the case where the party led the cartel; and six months in In the case of a civil damages claim based on cartel activities, case the party participated in a cartel. to date there are no precedent cases where the defendants’ pass-on defence was directly accepted or a detailed analysis was implemented Parallel proceedings regarding dual recovery issues. However, in its decision on the flour 25 Where possible sanctions for cartel activity include criminal cartel case (Korean Supreme Court, case No. 2010Da93790, rendered on and civil or administrative penalties, can they be pursued 29 November 2012), the Supreme Court determined that, if it is possible in respect of the same conduct? If not, when and how is the that damages were partially reduced based upon an increase in the choice of which sanction to pursue made? price of the products, it would be valid to take into account such circum- stances when calculating the amount of damages compensation based The MRFTA provides for both administrative sanctions that may be upon the principle of fairness. In sum, in the above decision, while the pursued by the KFTC and criminal sanctions that may be pursued by pass-on defence was not directly accepted, the Supreme Court took into the Prosecutors’ Office. However, article 71 of the MRFTA provides for account that pass-on may have actually occurred and, accordingly, this criminal prosecution only when the KFTC files a criminal referral with was ultimately reflected when calculating the final amount of damages the Prosecutors’ Office. Under the MRFTA, the KFTC shall file a criminal compensation at the stage of limiting the liability of the defendants.

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Class actions was not available under the 2001 rules, although the KFTC has discre- 27 Are class actions possible? If so, what is the process for such tion in determining additional reductions similar to ‘amnesty plus’. cases? If not, what is the scope for representative or group Effective for cartel activity that started on or after 1 April 2005, actions and what is the process for such cases? article 35 of the Enforcement Decree of the MRFTA was amended. Under the 2005 rules, the first company to come forward to the KFTC before or No class actions are permitted for a violation of the MRFTA. If several after the commencement of the KFTC investigation and cooperate would parties were injured due to a cartel, sometimes a lawsuit is commenced be given an automatic reduction in the fine of 100 per cent. The second by several joint plaintiffs or, under the system of selecting a representa- to come forward to the KFTC before or after the commencement of the tive party from those injured from the cartel, a lawsuit is commenced KFTC investigation and cooperate would be given an automatic reduction by one plaintiff or a number of plaintiffs among those several parties in administrative fine of 30 per cent, but effective on 4 November 2007, that were injured. In such system, if several parties that have the same article 35 of the Enforcement Decree was again amended to increase the interest need to become joint parties to the litigation, a party that could 30 per cent to 50 per cent for leniency applications made on or after the represent all the parties is selected as the ‘representative party’ on their effective date. behalf; this system makes the litigation simpler and more convenient. Under the 2005 and 2007 rules, if a company is not first or second to The decision that the representative party receives from the court also come forward to the KFTC and cooperate, such company will not benefit has an effect on those parties that selected the representative party. from the leniency programme. The KFTC has no discretion in deter- The difference between the representative party system and class- mining the percentage rate of reduction in administrative fine for leniency action system is that, while the representative party is a party selected applications. or authorised by several parties for joint litigation, the representative in In addition, the 2005 rules provide for ‘amnesty plus’, granting an a class action obtains permission from the courts without the authorisa- automatic reduction in administrative fine of between 20 per cent and 100 tion from the injured parties and carries out the litigation on behalf of per cent, depending on the relative scale of the second cartel over the such injured parties. The National Assembly is discussing the possibility first cartel. The 2007 rules deny leniency to cartel participants that have of adopting a class-action system for parties that have been injured by forced others to participate or not to stop participating. illegal acts, such as cartels. Joint leniency applications were not allowed until article 35 of the Moreover, the government announced its intent to introduce a Enforcement Decree of the MRFTA was amended, effective on 13 May class-action system for statutory violations that affect consumers in 2009, and the Notification was amended effective on 19 May 2009, permit- its ‘new government’s economic policy package’, which was introduced ting joint leniency applications under certain circumstances. Joint leniency on 25 July 2017. Subsequently, the discussion on whether to adopt the applications are now permissible by affiliate companies belonging to a class-action lawsuit system has been continuing to date. same business group, provided that they were not competitors. Joint leni- ency applications are also permissible by both a transferor company and COOPERATING PARTIES a transferee company for a transfer of a cartelised business, and by both the new company and the predecessor company of a corporate spin-off, Immunity provided that they did not participate in the same cartel at the same time. 28 Is there an immunity programme? If so, what are the basic Prior to the amendments in May 2009, leniency applicants had to elements of the programme? What is the importance of being terminate any cartel activity at the latest before the KFTC rendered its ‘first in’ to cooperate? final decision in order to qualify for leniency. Following the amendments, leniency applicants are now required to terminate the cartel activity For the first time, in 1996, Korea adopted the leniency programme immediately after their application in order to qualify for leniency, except only for the first company to report a cartel. In 2001, the MRFTA was when they are requested by the KFTC to assist its investigation. amended to provide for leniency for a company which reported or coop- In the past, upward movement of leniency rank was available only erated in the investigation of a cartel. On 1 April 2005, the KFTC issued if a higher-ranked leniency applicant failed to meet the leniency require- the Notification on Implementation of the Leniency Programme for ments. The May 2009 amendments, however, also provide for upward Corrective Measures Etc. Against Confessors, which adopted a ‘marker’ movement of leniency rank in the event of a voluntary withdrawal system, required a leniency application to be in writing and allowed a of a higher-ranked leniency application or a cancellation of higher maximum of 12 days within which to supplement evidence after receipt leniency rank. of a marker from the KFTC. On 1 July 2006, the KFTC amended the Article 35 of the Enforcement Decree of the MRFTA was amended Notification, permitting oral applications for leniency and increasing to take effect as of 22 June 2012. Under this amendment, in the case the period for supplementation of evidence to 15 days, which may be that two companies engaged in a cartel, the first company applying for extended by the KFTC by up to an additional 60 days upon showing leniency would be given a 100 per cent reduction in fine, but the second of a reason. company would not be given any reduction in a fine for leniency (although Under article 35 of the Enforcement Decree of the MRFTA adopted up to a 30 per cent reduction in fine may be available for ‘voluntary coop- in 2001, the first company to report the cartel to the KFTC prior to the eration’). In the case that three or more companies engaged in a cartel, KFTC’s commencement of investigation would be given a reduction in no reduction in fine would be available to the second (or subsequent) administrative fine of no less than 75 per cent. After the commence- company filing a leniency application after two years from the time the ment of a KFTC investigation, the first to come forward to the KFTC first company filed for leniency (again, although up to a 30 per cent reduc- would be given a reduction in administrative fine of no less than 50 per tion in fine may be available for ‘voluntary cooperation’). cent. Other parties to come forward to the KFTC and cooperate would be A company whose leniency application has been accepted by the given a reduction in administrative fine of up to 49.99 per cent. KFTC will be exempt from criminal prosecution, except where the violation So long as a party comes forward to the KFTC and cooperates with is objectively so obvious and serious as to greatly restrain competition. the KFTC, even if it is not the first or second to do so, such company A company executive who sponsors a cartel on behalf of his or her would benefit from the leniency programme. The KFTC has discretion company would be exempt from criminal prosecution under the same in determining the percentage rate of reduction in administrative fine conditions as the company. On 1 November 2007, however, a consider- within the permitted range for any leniency applicants. ‘Amnesty plus’ able uncertainty arose to the exemption from criminal prosecution when, www.lexology.com/gtdt 219 © Law Business Research 2020 South Korea Yoon & Yang LLC

in a case for which the KFTC filed a criminal referral against several have been additionally voluntarily reported and the scale of the rele- participants other than the two leniency applicants, the Prosecutors’ vant collaborative acts. For example, if the additionally reported cartel Office indicted the two leniency applicants as well as all the other partici- is smaller than or the same scale as the relevant cartel, a maximum pants, based on the belief that under the Criminal Procedure Act a KFTC mitigation of 20 per cent is possible, while if the scale of the additionally criminal referral against a participant would be deemed to be effective reported cartel is at least four times larger than the relevant cartel, the as against any and all of the participants in the same cartel. Similarly, entire amount of the administrative fine is waived. In the case of succes- the Prosecutors’ Office indicted two executives of the corporate leniency sion of ranks, when a latter-ranked applicant succeeds the rank of the applicants against whom the KFTC did not file a criminal referral. The higher-ranked applicant, it has to satisfy the requirements for leniency lower courts dismissed the indictments against the corporate leniency corresponding to the relevant higher rank in order to have its new leni- applicants and their executives on the ground that the indictments lacked ency status acknowledged by the KFTC. For example, to obtain the first proper criminal referrals from the KFTC. The uncertainty has recently rank, the relevant applicant has to satisfy the requirement of ‘the KFTC been resolved by the Supreme Court, which upheld the decisions of the lacking sufficient evidence’. In other words, even when a second-ranked lower courts in September 2010. Meanwhile, as examined above, under applicant could succeed the first-ranked one, if the KFTC had already the 16 July 2013 amendments to the MRFTA, which became effective on secured sufficient evidence at the time of the leniency application by the 17 January 2014, an exemption from the obligation to criminally refer a second-ranked applicant, such second-ranked applicant cannot succeed leniency applicant for cartel activities is explicitly recognised. the first-rank position notwithstanding the revocation of the first-rank On 21 July 2011, the KFTC revised the Notice to decrease the position since the second-ranked applicant had failed to satisfy the rele- minimum reduction rate of 20 per cent to ‘up to 20 per cent’ for ‘amnesty vant requirement. plus’, and to enable the KFTC to grant a longer supplemental period of Over the past several years, the number of cartel cases in which total of 75 days, especially for international cartel cases. the KFTC accepted leniency applications has increased dramatically: Based on the 2 January 2015 amendment to the Notification on • in 1999 the KFTC accepted 1 leniency applications and imposed Implementation of the Leniency Programme for Corrective Measures Etc. fines totalling 314 million Korean won; Against Confessors, the previous practice of having the secretary general • in 2000 the KFTC accepted 1 leniency applications and imposed of the KFTC provisionally confirm the marker of the leniency applicant fines totalling 43 million Korean won; was abolished, and the Notification was amended so that the marker • in 2001 the KFTC accepted no leniency applications; of the leniency applicant would only be confirmed through deliberation • in 2002 the KFTC accepted 2 leniency applications and imposed and adjudication by the KFTC. In the past (ie, before 2015), under the fines totalling 1,288 million Korean won; Notification, when a marker was perfected by a leniency applicant, the • in 2003 the KFTC accepted 1 leniency applications and imposed secretary general of the KFTC issued a notice of provisional confirma- fines totalling 3,433 million Korean won; tion of the marker to the applicant, but some leniency applicants tended • in 2004 the KFTC accepted 2 leniency applications but did not to slow down their cooperation with the KFTC’s investigation once they impose any fines; had received such a provisional confirmation. Thus, in order to prevent • in 2005 the KFTC accepted 7 leniency applications and imposed leniency applicants from slowing down their cooperation after receiving fines totalling 173,673 million Korean won; a notice of provisional confirmation, the KFTC abolished the system of • in 2006 the KFTC accepted 7 leniency applications and imposed issuing a notice of provisional confirmation of a marker for a leniency fines totalling 54,992 million Korean won; applicant, by amending the above notification. • in 2007 the KFTC accepted 10 leniency applications and imposed Based on the 15 April 2016 amendment to the Notification, the attend- fines totalling 221,373 million Korean won; ance of officers and employees of the leniency applicant at the hearing • in 2008 the KFTC accepted 21 leniency applications and imposed was added as one of the standards for determining whether the leni- fines totalling 150,600 million Korean won; ency applicant had ‘faithfully cooperated’. According to the KFTC press • in 2009 the KFTC accepted 17 leniency applications and imposed release, such amendment was made since it was necessary to determine fines totalling 42,000 million Korean won; the credibility of the details in the leniency application and to prevent • in 2010 the KFTC accepted 18 leniency applications and imposed changes to previous statements by providing the commissioners with an fines totalling 557,100 million Korean won; opportunity to directly examine the relevant officers and employees. • in 2011 the KFTC accepted 32 leniency applications and imposed Under the 29 March 2016 amendments to the MRFTA, which became fines totalling 552,200 million Korean won; effective on the same date, if a party that received a reduction or exemp- • in 2012 the KFTC accepted 13 leniency applications and imposed tion from corrective measures or administrative surcharges for its fines totalling 275,128 million Korean won; leniency applicant marker or cooperation with the investigation engages • in 2013 the KFTC accepted 23 leniency applications and imposed in a new cartel after such reduction or exemption, such party will not fines totalling 352,312 million Korean won; be eligible for any reductions or exemptions from corrective measures • in 2014 the KFTC accepted 44 leniency applications and imposed or administrative surcharges for its leniency applicant marker or coop- fines totalling 769,428 million Korean won; eration with an investigation for five years from the initial reduction or • in 2015 the KFTC accepted 48 leniency applications and imposed exemption from corrective measures or administrative surcharges (the fines totalling 406,020 million Korean won; relevant provision became effective from 30 September 2016). • in 2016 the KFTC accepted 27 leniency applications and imposed The Amended Notification on Mitigation of Administrative Fines, which fines totalling 753,319 million Korean won; came into effect on 30 September 2016, includes the following changes: • in 2017 the KFTC accepted 41 leniency applications and imposed • improvement of leniency application procedures; fines totalling 221,386 million Korean won; • specification of amnesty plus standards; • in 2018 the KFTC accepted 41 leniency applications and imposed • enhancement of the requirements for a succession of ranks; and fines totalling 205,242 million Korean won; • amendment to the standards for determining repetitive cartels. • in 2019 (to July) the KFTC accepted 34 leniency applications and imposed fines totalling 67,585 million Korean won; and Among the changes, the standards for amnesty plus stipulated in detail • in 2020 the KFTC accepted 30 leniency applications and imposed the leniency ratio by comparing the scale of the collaborative acts that fines totalling 67,204 million Korean won.

220 Cartel Regulation 2021 © Law Business Research 2020 Yoon & Yang LLC South Korea

Subsequent cooperating parties time limits in regard to filing prior to or after the time when the KFTC’s 29 Is there a formal programme providing partial leniency for investigation has commenced. However, the second-ranked leniency parties that cooperate after an immunity application has been applicant must file its application for leniency within two years from the made? If so, what are the basic elements of the programme? date on which the voluntary report of the first-ranked leniency applicant If not, to what extent can subsequent cooperating parties was filed. expect to receive favourable treatment? With respect to the second question, there is a marker system under the Notification on Implementation of the Leniency Programme After the Enforcement Decree of the MRFTA was amended in 2005, if a for Corrective Measures Etc. Against Confessors. If an applicant files for company is not first or second to come forward to the KFTC and coop- leniency with the KFTC, the KFTC official who receives such application erate, such company will not benefit from the leniency programme. will note the date and time and rank or marker on such application and However, even if the leniency programme is not applicable, if an under- will provide it to the applicant after signing off on such application. If taking consistently acknowledges that it engaged in the applicable an applicant requires a significant amount of time to obtain evidentiary conduct and cooperates with the investigation from the investigation materials or there are special circumstances present where eviden- stage until the conclusion of deliberation, the amount of administrative tiary materials cannot be submitted at the time of such application, an fines imposed on such undertaking may be reduced within the scope application that omits certain portions may be submitted. Under such of 30 per cent pursuant to the provisions of the KFTC’s Notification on circumstances, the applicant may be initially granted a 15-day supple- Detailed Standards Regarding Imposition of Administrative Fines. mental period, which may be extended for up to 60 additional days if a valid reason is provided to the KFTC. However, as an exception, if it is Going in second recognised that such extension is required to collect relevant eviden- 30 How is the second cooperating party treated? Is there an tiary materials and obtain statements in international cartels, such ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, extension may go beyond 60 days. If the applicant satisfies the appli- how does it operate? cable requirements and is confirmed for leniency by the KFTC, then such application will be deemed to have been filed as of the time when A company that satisfies all of the requirements below will be accepted the initial application was made. as the second leniency applicant and so will be given a reduction in administrative fine by 50 per cent, and will be exempt from the correc- Cooperation tive order and from criminal referral: 32 What is the nature, level and timing of cooperation that • applies for lieniency before the KFTC commences its investigation is required or expected from an immunity applicant? Is or cooperate with the KFTC after it commences its investigation, there any difference in the requirements or expectations and be the second company to voluntarily provide evidence neces- for subsequent cooperating parties that are seeking partial sary to prove the cartel; leniency? • cooperates in good faith, such as providing statements of all the facts related to the cartel and the relevant materials until the Under article 35 of the Enforcement Decree of the MRFTA, a leniency committeee’s deliberation end; and applicant must faithfully cooperate until the conclusion of the KFTC • discontinues participation in the cartel. investigation by, among other things, making statements regarding all the relevant facts of the unreasonable collaborative acts and submit- The status of second leniency applicant shall not be granted in the event ting the relevant materials, to receive a reduction or exemption of the that there are only two cartel participants and two years have elapsed corrective order or administrative fine, or both. According to the KFTC’s since the first leniency applicant applied for leniency or cooperated with Notification on Imposition of Corrective Measures and Operation of the investigation. Leniency System for Leniency Applicants of Unreasonable Collaborative In addition, an ’amnesty plus’ treatment is available. If a company Acts, ‘until the end of the investigation’ refers to the period ‘until the participated in cartel A becomes the fist leniency applicant or the first to end of deliberation by the KFTC’, and whether a leniency applicant has cooperate with the investigation into cartel B, which it also participated faithfully cooperated is comprehensively determined based on whether: in, it may also be given a reduction in its administrative fine and be • all the facts regarding the relevant collaborative acts known exempt from the corrective measures for cartel A. The extent of addi- by the leniency applicant were provided in statements without tional reduction of administration fines differs, according to the size of undue delay; the cartel (determined by the sales of products or services): • all materials regarding the relevant collaborative acts that were • cartel B is equal to or smaller than cartel A: reduction of adminis- held or could be collected by the leniency applicant were promptly trative fine by less than 20 per cent; submitted; • cartel B is greater than cartel A by less than two times: reduction of • prompt responses and cooperation were provided regarding administrative fine by 30 per cent; inquiries by the KFTC that were necessary to confirm facts; • cartel B is greater than cartel A by two times but less than four • officers and employees (if possible, including previous officers and times: reduction of administrative fine by 50 per cent; and employees) made utmost efforts to continuously and truthfully • cartel B is greater than cartel A by four times or more: exempt from cooperate, inter alia, during the KFTC’s investigation and the exam- an administrative fine. ination process (including personal attendance of the hearing); • evidence related to the collaborative acts was destroyed, manipu- Approaching the authorities lated, mutilated or concealed; and 31 Are there deadlines for initiating or completing an application • the facts regarding the illegal acts or leniency application were for immunity or partial leniency? Are markers available and provided to a third party prior to the issuance of the examiner’s what are the time limits and conditions applicable to them? report without the approval of the KFTC.

With respect to the first question, the application for immunity can be However, recently, the Korea Supreme Court deemed that leniency filed until the end of deliberation by the commissioners and there are no applicants did not faithfully cooperate with the KFTC if such leniency www.lexology.com/gtdt 221 © Law Business Research 2020 South Korea Yoon & Yang LLC

applicants destroyed evidence about cartels or leaked the fact of such • a summary of the cartel; leniency application ‘to third parties, including cartel participants’ • evidence necessary to prove the cartel exists and an evidence list; without the KFTC’s approval before the conclusion of deliberation by • a statement that the applicant will cooperate in good faith; and the KFTC (see Korean Supreme Court, case No. 2016Du46458, rendered • a statement that the applicant has discontinued participation in on 11 July 2018 and case No. 2016Du45783 rendered on 26 July 2018). the cartel. There is no particular difference in the obligation to cooperate between a first-ranked leniency applicant receiving a 100 per cent Applications may be submitted by visiting the KFTC, by email, fax or orally. exemption of the administrative fine and a lower-ranked leniency appli- However, submissions by phone are not permitted. For oral submissions, cant receiving a 50 per cent reduction of the administrative fine. the applicant’s responses to the case examiner’s questions are recorded or videotaped. Confidentiality Immediately after receiving the application, the case examiner 33 What confidentiality protection is afforded to the immunity marks the application form with the date and time of the application and applicant? Is the same level of confidentiality protection the applicant’s registration ranking, and issues a copy to the applicant. applicable to subsequent cooperating parties? What This ranking only refers to the registration of the application. information will become public during the proceedings and A ‘first revision’ interview between the leniency applicant and the when? KFTC is then held within seven days of the leniency application being received. If the applicant requires additional time to collect evidentiary The identity of leniency applicants and the information and evidentiary materials, they may request for the interview to be held within 15 days. materials are treated as confidential. The investigations, hearings and At this interview, the applicant submits their initial evidence and material decisions must be conducted or made in a manner so as not to disclose to the case examiner. The applicant may also negotiate for a ‘second revi- the information. However, the KFTC may disclose the information ‘if sion’ period and a deadline to submit further material. If the applicant can necessary for bringing or carrying on a lawsuit relating to the case’ in or prove it has a justifiable cause to be granted more time to collect evidence, for which a leniency application was made. In an administrative lawsuit they may apply for a second revision period of up to 60 days. If the case regarding the KFTC’s disposition or a civil lawsuit for compensation of examiner determines additional time is needed to collect evidence and damages for a cartel, the relevant court may order the KFTC to submit obtain statements, they may extend this period beyond 60 days. leniency-related materials upon a motion by the parties. In such case, Generally, a face-to-face meeting with the case examiner and the the KFTC should comply with such court order and submit the relevant director-in-charge must be held within 14 days from the date the appli- materials. The degree of confidentiality protection afforded to lower- cant submits its second revision. The case examiner then submits a ranked leniency applicants is the same. separate examiner’s report to the committee, determining theapplicant’s status and ranking as a leniency applicant. The committee then deliber- Settlements ates and decides the applicant’s ranking and issues the decision to the 34 Does the investigating or prosecuting authority have the applicant. ability to enter into a plea bargain, settlement, deferred prosecution agreement (or non-prosecution agreement) or DEFENDING A CASE other binding resolution with a party to resolve liability and penalty for alleged cartel activity? What, if any, judicial or Disclosure other oversight applies to such settlements? 37 What information or evidence is disclosed to a defendant by the enforcement authorities? Plea bargains or settlements for cartel activities are not permitted in Korea. Also, under the amended MRFTA, the consent decree system Among the materials attached to the examiner’s report, the Korea Fair under the MRFTA applies only to other MRFTA violations excluding Trade Commission (KFTC) must disclose all materials to a defendant, cartel activities. excluding confidential materials necessary for the protection of trade secrets or privacy, materials related to the leniency application, and Corporate defendant and employees confidential materials prescribed under other statutes. 35 When immunity or partial leniency is granted to a corporate defendant, how will its current and former employees be Representing employees treated? 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should A company whose leniency application has been accepted by the KFTC a present or past employee be advised to obtain independent will be exempt from criminal prosecution, except where the violation is legal advice or representation? objectively so obvious and serious as to greatly restrain competition. Also, a company’s current and former employees who sponsor a cartel Subject to the Bar rules on conflicts of interest, counsel may represent on behalf of their company would be exempt from criminal prosecution or give legal advice to those employees under investigation, as well as under the same conditions as the company. the corporation.

Dealing with the enforcement agency Multiple corporate defendants 36 What are the practical steps for an immunity applicant 39 May counsel represent multiple corporate defendants? Does it or subsequent cooperating party in dealing with the depend on whether they are affiliated? enforcement agency? Owing largely to the leniency programme, in general, representation of Generally, leniency is granted according to the following steps. multiple corporate defendants would neither be possible nor advisable. The undertaking submits a leniency application form to the KFTC This is the case regardless of whether such corporate defendants are which includes: affiliated.

222 Cartel Regulation 2021 © Law Business Research 2020 Yoon & Yang LLC South Korea

Payment of penalties and legal costs In response, B filed a lawsuit seeking annulment of the KFTC’s 40 May a corporation pay the legal penalties imposed on its disposition. The Seoul High Court annulled the KFTC’s disposition employees and their legal costs? stating that the five-year period for imposing a disposition under the previous MRFTA had expired for the cartel prior to June 2007 (Cartel 1) A corporation’s payment of the legal fees or penalties on behalf of because the cartel had effectively broken down by June 2007, through the individual employees who participated in unreasonable collabora- repetitive price competition among A, B, and C, and that the court could tive acts might be subject to criminal punishment under the relevant not conclude that the cartel after June 2007 (Cartel 2), had formed an Korean laws. agreement based only on exchange of information, even if B exchanged information on sales performance with another enterpriser and B’s Taxes price fluctuation appeared to coincide with that of A’s and C’s (Seoul 41 Are fines or other penalties tax-deductible? Are private High Court Decision No. 2016Nu39257 rendered on 17 June 2016). The damages payments tax-deductible? KFTC appealed the court’s decision, but the appeal was denied by the Supreme Court (Supreme Court Decision No. 2016 Du 46113 rendered Since administrative fines that are imposed owing to cartel activities on 14 March 2019). constitute ‘public charges imposed as sanctions for non-performance C also filed suit with regard to the KFTC’s disposition above and of duties, or a violation of prohibitions or restrictions under Acts and the Seoul High Court annulled the KFTC’s disposition against C for the subordinate statutes’ under article 21(iv) of the Corporate Tax Act, they reasons similar to the above decision regarding B (Seoul High Court are not included as deductible expenses when calculating the income Decision No. 2015Nu39240, rendered on 23 June 2016). The KFTC amount. In the case of civil compensation of damages, since they are appealed but unlike the case for B, the Supreme Court reversed and not expenses that are generated from ordinary business activities, they remanded the Seoul High Court’s ruling with regard to C’s Cartel 2 are also not included as deductible expenses. In sum, both of the above (Supreme Court Decision No. 2016Du46687 rendered on 31 January amounts are not tax-deductible. 2019). The major reasons were: • ‘Agreement’ under article 19(1) of the MRFTA essentially requires International double jeopardy mutual communication of intent between or among two or more 42 Do the sanctions imposed on corporations or individuals take enterprises. Thus, an agreement cannot naturally be found, even into account any penalties imposed in other jurisdictions? In if the outer appearances coincide with the situation where an private damage claims, is overlapping liability for damages in unlawful cartel listed under each subclause of the above provision other jurisdictions taken into account? existed. Rather, evidence of circumstances showing reciprocity of communication of intent between the enterprisers must exist. Even if a company has had sanctions imposed on it by foreign competi- • Considering that the sales personnel of A, B, and C collected and tion authorities based on the same cartel activity, in principle, this does shared sales information such as other entities’ import prices, not influence the KFTC’s sanctions imposed for such cartel activity. sales prices and discounted prices, the price fluctuations of A and However, with respect to criminal procedures, under article 7 of the C appeared to coincide as their price increases were approximately Korean Criminal Code, the criminal sanctions imposed in Korea may one month apart, and A’s employee stated that A increased price be reduced or exempted in case criminal sanctions had already been with C upon C’s request to do so and planned to persuade B to do imposed on a party abroad. To date, there are no precedent cases in civil the same. The fact that A and C engaged in Cartel 2 is included as damages claims where it was analysed or considered that the compen- the reason for disposition in the KFTC’s disposition, therefore, C is sation of damages related to the applicable case was already made in highly likely to be deemed to have engaged in Cartel 2, even if it is other jurisdictions. unclear whether B participated in Cartel 2.

Getting the fine down The above decision is significant because the Supreme Court held, 43 What is the optimal way in which to get the fine down? without ordering a change in the KFTC’s reasons for disposition, that the KFTC’s reason for disposition not only included a tripartite cartel but The best way to obtain leniency and reduce any administrative or crim- also a bilateral cartel between A and C even though the KFTC’s disposi- inal fine is to be the first to come forward to the KFTC and cooperate tion was based on the KFTC’s finding that an agreement was formed fully, completely and in good faith. among A, B, and C. For reference, the lower court on remand held that C engaged in Cartel 2 for the same reasons provided in the Supreme UPDATE AND TRENDS Court decision above and such decision was finalised (Seoul High Court Decision No. 2019Nu34502 rendered on 23 October 2019). Recent cases 44 What were the key cases, judgments and other developments Regime reviews and modifications of the past year? 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency The Korea Fair Trade Commission (KFTC) found that the agreement and programmes or other elements of the regime? application of the rate and period of increase of domestic bearing sale price between December 1998 to March 2012 by A, B, and C – manufac- The bill to amend the MRFTA, which includes substantially restricting turers and suppliers of bearings for commercial use – was a violation competition by exchanging sensitive information, such as future prices, of article 19(1) of the Monopoly Regulation and Fair Trade Act (MRFTA). between competitors as a type of an unreasonable collaborative act The KFTC imposed a corrective order and administrative surcharge to (ie, cartel behaviour) is pending legislation. In the European Union and B and C and filed a criminal referral with the Prosecutors’ Office (KFTC the United States, among others, the exchange of sensitive information Decision No. 2015-064 dated 15 March 2015). A, as the first-ranking leni- between competitors is deemed to cause considerable anticompeti- ency applicant, was exempt from the corrective order, administrative tive effects and is prohibited as a concerted practice, or information surcharge and criminal referral. exchange agreements themselves are subject to regulation. As the www.lexology.com/gtdt 223 © Law Business Research 2020 South Korea Yoon & Yang LLC

MRFTA currently does not contain relevant provisions, so it has been challenging to regulate the exchange of sensitive information as an unreasonable collaborative act. In this respect, to making the regulation of the anticompetitive exchange of information more effective, the bill to amend the MRFTA was proposed in August 2020. The amendment stipulates that the existence of an agreement between enterprises may be legally presumed if there exists external conformity of conduct that could be deemed as a cartel between the enterprises, and there is an exchange of information necessary for such concerted conduct to occur. Hoil Yoon [email protected] Further, the amendment provides that an agreement between enter- prises about exchanging information, including price and sales volume, Chang Ho Kum that substantially restricts competition may be deemed as a type of [email protected] unreasonable collaborative act (ie, cartel behaviour). Yang Jin Park Initially, the Prosecutors’ Office was unable to indict entities for [email protected] conducting unreasonable collaborative acts without a criminal referral from the KFTC. However, the MRFTA amendment would enable a pros- 34th Floor, ASEM Tower ecutor to directly indict in cases of objectively obvious and serious 517 Yeongdong-daero, Gangnam-gu collaborative acts (ie, hardcore cartels, including price-fixing, output Seoul 06164 restriction cartels, market allocation cartels and bid rigging) and the South Korea KFTC and Prosecutors’ Office may share case materials, among other Tel: +82 2 6003 7000 information. Fax: +82 2 6003 7800 In addition, if a cartel is engaged in for the purpose of rationalisa- www.yoonyang.com tion of industry, research and development of technology, overcoming recession, industrial restructuring, rationalisation of trade terms or enhancement of competitive power of small and medium-sized compa- nies, the requirements determined by an Enforcement Decree of the MRFTA are satisfied, and KFTC approval is given, article 19(1) of the MRFTA does not apply. The MRFTA amendment bill simplifies and clari- fies some of the overlapping requirements to receive such approval from the KFTC so that the requirement only entails industrial restructuring to overcome recessions, research and development of technology, ration- alisation of trade terms or enhancement of competitive power of small and medium-sized companies.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

The KFTC has not established a policy or expressed its views on cartel investigation or enforcement of laws in relation to covid-19. It appears, however, that effective enforcement of the law has slowed down due to KFTC employees working from home and the KFTC refraining from dawn raids. Entities may be able to receive a mitigation of administrative surcharges if exacerbated financial standing and economic conditions resulting from covid-19 are detailed to the KFTC, as it has the discre- tion to reduce administrative surcharges, taking into account an entity’s realistic ability to pay and market or economic conditions.

224 Cartel Regulation 2021 © Law Business Research 2020 Spain

Andrew Ward, Irene Moreno-Tapia, Carlos Alberto Ruiz and Marta Simón Cuatrecasas

LEGISLATION AND INSTITUTIONS Spanish commercial courts are also entitled to apply article of the 1 LDC (and 101 of the TFEU) and could therefore theoretically declare Relevant legislation the existence of a cartel, and to award damages, even in cases where 1 What is the relevant legislation? there has been no previous decision to that effect by the CNMC or an RCA (although, in practice, cases in the courts involving cartels tend to Cartels in Spain are regulated by Law No. 15/2007 of 3 July for the be follow-on claims). Defence of Competition (LDC) and its implementing regulation approved by Royal Decree 261/2008 of 22 February. Article 101 of the Treaty on Changes the Functioning of the European Union (TFEU) also applies in cartel 3 Have there been any recent changes, or proposals for change, cases where there is an effect on trade between EU member states. to the regime?

Relevant institutions In July 2020, the Spanish government published a draft proposal to 2 Which authority investigates cartel matters? Is there amend the LDC. The main purpose of the draft is to implement the ECN+ a separate prosecution authority? Are cartel matters Directive, although the government has also taken the opportunity to adjudicated or determined by the enforcement agency, a introduce additional changes to the current LDC. separate tribunal or the courts? The draft proposal was open for consultation until 15 September 2020, and the final version of the proposed law is currently in prepara- The public enforcers of Competition law in Spain are the National tion. The main changes introduced in the draft proposal regarding cartel Commission for Markets and Competition (CNMC), which was set up by infringements can be summarised as follows: Law No. 3/2013 of 4 June on the Creation of the National Commission for • all anticompetitive agreements (essentially, article 101 of the Markets and Competition, with nationwide jurisdiction for any infringe- TFEU) and abuses (article 102 of the TFEU) will be considered very ment with effects extending beyond a single region and the Regional serious infringements and will therefore be punishable with fines Competition Authorities (RCAs), that has jurisdiction for infringements of up to 10 per cent of the turnover of the infringing undertaking with effects within the autonomous region in question. in the financial year before the imposition of the fine. Fines will The CNMC consists of a collective decision-making body, the be calculated taking into account the worldwide turnover of the Council, which has two chambers (one for competition and the other companies involved in the infringement proceedings; for regulatory matters), including several directorates responsible • the maximum amount of fines that can be imposed on legal for investigating different sectors (competition, energy, telecom- representatives and directors for participation in cartels will be munications and audiovisual media, and transport and postal). The increased to €400,000 (up from €60,000); Competition Chamber of the Council decides on competition infringe- • the possibility of settlement decisions, in which parties receive a ments, including cartel cases, while the Directorate for Competition is discount on the fine of up to 15 per cent in return for accepting the the unit in charge of investigating cartel infringements at a national or responsibility of an infringement will be introduced; supra-regional level. • the maximum duration of infringement procedures in cartel cases The autonomous regions of Andalusia, Aragon, the Basque Country, from 18 months to a maximum of 24 months. Additionally, the Castilla y León, Catalonia, the Community of Valencia, Extremadura time for undertakings to submit observations to Statements of and Galicia have competition authorities mirroring the structure of the Objections and Proposals for a Resolution will be extended from 15 CNMC, with an investigative and a decision-making body. The RCAs of days to one month; and Canarias, Madrid, Murcia and Navarra also have an investigative body • a specific procedure for interrupting investigation deadlines when but no decision-making body; instead, the Council of the CNMC makes other competition authorities or the European Commission open a the final decision. The other Spanish autonomous regions (Asturias, parallel investigation, or during a court review, is introduced. Baleares, Cantabria, Castilla La Mancha, and la Rioja) do not have their own competition authority; all cartel infringements are dealt with Also, the draft provides for improved cooperation with the European directly by the CNMC. Commission and other competition authorities, including sharing confi- Law No. 1/2002 of 21 February on the Coordination of the dential information or authorising other officials to assist in dawn-raids, Competences of the State and the Autonomous Regions in Competition and strengthens the investigatory powers of the competition authority. matters, regulates the allocation of antitrust investigation powers The possibility for the authority not to pursue every complaint, for stra- between the CNMC and the RCAs, which may only conduct investiga- tegic reasons or otherwise, is also provided for in the draft proposal. tions concerning infringements whose effects are limited to the territory of their regions. www.lexology.com/gtdt 225 © Law Business Research 2020 Spain Cuatrecasas

Substantive law APPLICATION OF THE LAW AND JURISDICTIONAL REACH 4 What is the substantive law on cartels in the jurisdiction? Application of the law Article 1 of the LDC prohibits agreements, collective decisions or recom- 6 Does the law apply to individuals, corporations and other mendations, and concerted or consciously parallel practices, which entities? have as their object or effect the prevention, restriction or distortion of competition in all or part of the Spanish market, including: Competition rules in Spain apply to both individuals and undertakings. • direct or indirect price-fixing or any other trading or service The concept of ‘undertaking’ is defined broadly and can extend to any conditions; legal or natural person engaged in economic activity, also covering • the limitation or control of production, distribution, technical devel- trade associations, individuals operating as sole traders and state- opment or investment; owned corporations. • sharing markets or sources of supply; Where a company is found to have participated in an infringement, • applying dissimilar conditions to equivalent transactions, thereby the Spanish competition authorities can also impose fines up to €60,000 placing some competitors at a disadvantage compared with on legal representatives and directors found to have participated in that others; and conduct. For this to happen, the following requirements are met, namely: • entering agreements subject to the acceptance of supplemen- • that the individual has the status of a legal representative or tary obligations that have no connection with the object of these member of the management bodies of the offending company agreements. (this has been interpreted broadly by the courts, that consider this condition met if the individual can adopt decisions that ‘mark, Principally, the LDC includes in its Fourth Additional Provision, amended condition or direct’ the actions of the company); and by Royal Decree 9/2017 of 26 May 2017, the definition of a cartel as any • that the individual participated in the agreements or decisions agreement or concerted practice among two or more competitors that contrary to the competition rules. aims to coordinate or influence competitive behaviour in the market by, inter alia: Extraterritoriality • fixing or coordinating purchase or selling prices or other trading 7 Does the regime apply to conduct that takes place outside the conditions (even concerning intellectual and industrial prop- jurisdiction (including indirect sales into the jurisdiction)? If erty rights); so, on what jurisdictional basis? • allocating production or sales quotas; • allocating markets and customers, including collusion in tenders, Theoretically, any conduct taking place outside Spain that affects or may restrictions on imports or exports; or affect competition in all or part of the Spanish market has the potential • any other practice generally against competitors. to be covered by the cartel prohibition and is subject to investigation by Spanish authorities. In cases in which the anticompetitive agreement Since no form is specified, it is understood that no written agree- could be considered as capable of affecting trade between EU member ment or other formality is required, and one of the notable features of states, the National Commission for Markets and Competition (CNMC) Spanish cartel enforcement is the extension of the concept of a cartel to would also apply article 101 of the Treaty on the Functioning of the exchanges of information. European Union (TFEU). In practice, the Spanish competition authori- No express intention is needed for a finding of infringement, which ties would likely seek to coordinate with the competition authorities can be based on the object. In theory, a fine can only be imposed in of the other EU member states and even the European Commission in an infringement is carried out intentionally or negligently, although in those cases. practice the threshold for negligence is low. The competition authori- ties need not demonstrate that an agreement or concerted practice Export cartels produced effects or was even successfully executed. 8 Is there an exemption or defence for conduct that only affects Although not generally relevant in the context of cartels, agree- customers or other parties outside the jurisdiction? ments, decisions or concerted practices may nonetheless benefit from an exemption under article 1.3 of the LDC (mirroring article 101.3 of No, there is no such express exemption in Spain. However, the conduct the TFEU) if they improve the production or distribution of goods or can only be caught under article 1 of Law No. 15/2007 of 3 July for the promote technical or economic progress, subject to specific require- Defence of Competition (LDC) if it affects customers or other parties in ments. Further, according to article 4 of the LDC, the prohibitions under Spain. In this regard, an effect on a Spanish customer seeking to operate article 1 of the LDC do not apply to agreements resulting from the appli- in overseas markets could, in principle, be sufficient. cation of the law. Industry-specific provisions Joint ventures and strategic alliances 9 Are there any industry-specific infringements? Are there any 5 To what extent are joint ventures and strategic alliances industry-specific defences or exemptions? potentially subject to the cartel laws? There are no industry-specific infringements, offences or exemptions. Non-concentrative joint ventures and strategic alliances would be However, specific rules at EU level concerning the application of article assessed in the same way as any other agreement and are potentially 101 of the TFEU could be also applied in Spain (eg, rules concerning the subject to the cartel laws. Particularly, several CNMC investigations agricultural and transport sectors). into cartel conduct related to public contracting have alleged the use of temporary joint ventures or even long-lasting strategic alliances as part of an anticompetitive cartel strategy.

226 Cartel Regulation 2021 © Law Business Research 2020 Cuatrecasas Spain

Government-approved conduct response to the SO. After receiving the responses to the SO, 10 Is there a defence or exemption for state actions, the Directorate for Competition will draft a proposed resolu- government-approved activity or regulated conduct? tion, taking into consideration its findings and the arguments of the parties, including the available evidence. The proposed Under article 4 of the LDC, the prohibitions set out in the LDC do not apply resolution will be notified to the interested parties who, again, to conducts – including agreements that could be considered cartels – will be granted 15 working days (with a possible extension of that result from the application of the law. However, article 4 of the LDC seven additional days) to submit observations. The Directorate is narrowly interpreted and applied. First, the government regulation for Competition will then refer the case to the Council of the authorising the conduct must be a law with at least the same rank as the CNMC, together with a report (the proposed report) including LDC – secondary legislation will not suffice. Second, article 4 of the LDC the proposed resolution and the written submissions made by will not apply if the law in question merely permits conduct – for article the interested parties; and 4 of the LDC to apply the conduct must be mandatory under that law. • decision phase: the Council will then have a period of around Alternatively, government agencies other than the CNMC or the six months to adopt a final decision. During this period, the Regional Competition Authorities have no jurisdiction to determine Council is entitled to order the Directorate for Competition to whether conduct falls within article 1, 2 or 3 of the LDC. As such, the gather further evidence or carry out other actions. Principally, mere fact that conduct is government-approved, or even that govern- the Council may agree to an oral hearing with the parties. In ment agencies participate in it, is no defence. Spanish courts have, cases where the competition authority intends to apply EU however, ruled out the possibility to consider the existence of an infringe- law, they must send a draft of the decision to the European ment when the regulatory context of the practices under investigation Commission, during which time the deadlines will usually was misleading and the administration had actively participated in the be suspended. The Council will issue the final decision, conduct (eg, see the High Court ruling of 15 October 2012 in Appeal No. which may: 608/2011 referring to the Spanish competition authority’s decision in • declare the existence of an infringement and the under- case S/0167/09 Productores Uva y Mosto Jerez). takings responsible; • order the parties to bring the anticompetitive conduct INVESTIGATIONS to an end; • order the parties to restore the situation to eliminate the Steps in an investigation effects of the prohibited conducts; 11 What are the typical steps in an investigation? • impose fines; • impose conditions or obligations; or The main steps carried out by the National Commission for Markets and • impose any other measures authorised by competition Competition (CNMC) during an investigation are as follows: rules. (In the final decision, the Council will also decide on • origin of the investigation: the competition authorities may start whether the immunity or leniency applicant has complied an investigation ex officio when the authority is aware of indicia with all the requirements for immunity or reduction and of infringement, or after the receipt of a complaint or leniency the amount of any reduction of the fine.) application, although in practice most cartel cases are started as a result of a leniency application; If the maximum period of 18 months (which may be extended on • reserved investigation: before opening a formal investigation, the several grounds) lapses without a decision being taken, the proceed- competition authority will typically carry out a reserved investiga- ings are considered to have expired and the investigation null and void. tion. The reserved investigation is fully confidential and parties are Nevertheless, the competition authorities are expressly authorised to not made aware of it or allowed to access the file, and at this stage, open a new investigation in these circumstances – provided that the the competition authority may conduct dawn-raids. There is no infringement has not been prescribed in the meantime. maximum duration for the reserved investigation, which can vary in length between a few months and even a few years; and Investigative powers of the authorities • formal investigation: if the CNMC decides to open a formal investi- 12 What investigative powers do the authorities have? Is court gation it will notify the parties under investigation and publish the approval required to invoke these powers? decision to do so. From the formal opening of the investigation, the CNMC has 18 months to adopt a final decision. The formal investi- Both the CNMC and the Regional Competition Authorities have broad gation is divided into two separate phases of approximately 12 and powers of investigation that include the right to: six months respectively (although the 12 and six-month deadlines • access premises, land and the means of transport of companies are not binding): and associations, including private homes (in the latter case, with • investigation phase: during about the first 12 months from a court order); the opening of the formal investigation, the Directorate for • seize and make copies of documents to support an investigation Competition will review the evidence gathered and may send (hard copies or electronic copies); information requests to the investigated parties or conduct • retain original documents that have been seized; further inspections. If the Directorate for Competition finds • affix seals to premises under inspection; and sufficient evidence of an infringement, it will send a Statement • request oral explanations on the spot. of Objections (SO) to all interested parties. After receiving the SO, the parties will have access to any leniency applications The competition authorities can access the premises of an undertaking and supporting materials in the offices of the competition to carry out inspections either with the consent of the undertaking authority (no copies are provided or permitted, but parties can subject to inspection or with judicial authorisation. In determining review the materials in situ) and the parties will be granted whether to authorise access for the inspection, the undertaking has the 15 working days (with a possible extension of seven addi- right to be informed whether a judicial authorisation has been applied tional days) to submit observations and propose evidence in for or not and whether it has been granted or refused. www.lexology.com/gtdt 227 © Law Business Research 2020 Spain Cuatrecasas

INTERNATIONAL COOPERATION Circumstantial evidence 17 Can an infringement be established by using circumstantial Inter-agency cooperation evidence without direct evidence of the actual agreement? 13 Is there cooperation with authorities in other jurisdictions? If so, what is the legal basis for, and extent of, such The existence of a cartel may be proved based on circumstantial cooperation? evidence, which, as a whole, must be sufficiently precise and consistent of the existence of a cartel for the authority, and subsequently the The National Commission for Markets and Competition regularly courts, to reach a firm conviction in each case. Where circumstantial cooperates with the European Commission and the national competi- evidence is used in this way, the parties are entitled to submit a reason- tion authorities in other EU member states through the European able alternative explanation. Competition Network (ECN). ECN members closely cooperate in the application of articles Appeal process 101 and 102 of the Treaty on the Functioning of the European Union. 18 What is the appeal process? Particularly, the ECN competition authorities cooperate by exchanging information on the following: The CNMC’s final decision issued by the Council may be appealed to • new cases or evidence and expected enforcement decisions; the Spanish High Court two months following notification. As part of the • coordinating investigations where necessary; appeal, the parties may request interim measures including the suspen- • providing mutual assistance on investigations; and sion of the obligation to pay the fine (subject, in most of the cases, to • discussing issues of common interest. the provision of a suitable guarantee). If the decision is by an RCA, the Superior Court of Justice of the corresponding autonomous region will Case allocation and cooperation procedures are further detailed in receive the appeal. the 2004 Commission Notice on Cooperation within the Network of The High Court or the Superior Court of Justice can rule on both Competition Authorities. fact and law and have full jurisdiction to review any aspect of the compe- tition authority decision. Interplay between jurisdictions The duration of the appeal process varies widely between around 14 Which jurisdictions have significant interplay with your 12 months and upwards of three years. Depending on the outcome, a jurisdiction in cross-border cases? If so, how does this affect further appeal may be possible to the Supreme Court, but only on the the investigation, prosecution and penalising of cartel activity grounds of a noteworthy legal interest. If accepted, that further appeal in cross-border cases in your jurisdiction? could also last several years, and, in this case, the Supreme Court is only entitled to rule on points of law unless factual findings are found It is difficult to single out any jurisdiction with significant interplay. to be mistaken. Spanish competition authorities have coordinated investigations with several authorities across the European Union. SANCTIONS

CARTEL PROCEEDINGS Criminal sanctions 19 What, if any, criminal sanctions are there for cartel activity? Decisions 15 How is a cartel proceeding adjudicated or determined? Law No. 15/2007 of 3 July for the Defence of Competition (LDC) does not establish any criminal sanction for competition law infringements. The Directorate for Competition of the National Commission for Markets However, some provisions of the Spanish Criminal Code (Law No. and Competition (CNMC)investigates cartel matters and proposes a 10/1995 of 23 November 1995) could apply to competition law infringe- decision to the Council of the CNMC, that adopts the final decision. ments. Particularly, articles 262 and 281 of the Spanish Criminal Code There are also Regional Competition Authorities (RCAs) in several provide for criminal sanctions for bid rigging or limiting the output autonomous regions within Spanish territory that also have investiga- of raw materials or essential products and article 284 of the Spanish tive and decision powers concerning infringements whose effects are Criminal Code provides for criminal sanctions for those who alter prices limited to their regions (ie, Andalusia, Aragon, the Basque Country, through violence, intimidation or deceit. Castilla y León, Catalonia, the Community of Valencia, Extremadura and Galicia). Other regions only have an investigative body (ie, Canarias, Civil and administrative sanctions Madrid, Murciaand Navarra), and then the Council of the CNMC adopts 20 What civil or administrative sanctions are there for cartel a final decision. activity?

Burden of proof The LDC qualifies cartels as a very serious infringement of competi- 16 Which party has the burden of proof? What is the level of tion rules that can be fined with up to 10 per cent of the total turnover proof required? of the infringing undertaking in the financial year before the imposi- tion of the fine. When the turnover of the infringing undertaking cannot The burden of proof lies with the competition authority to establish the be calculated, the National Commission for Markets and Competition facts and the existence of a cartel. However, if a party is claiming the (CNMC) may impose a fine of up to €10 million. Legal representatives or application of an exemption under article 1(3) of the Law No. 15/2007 members of management bodies who have directly participated in the of 3 July for the Defence of Competition, the burden of proof lies with cartel can also be fined up to €60,000. the party making that claim. The legislation does not establish precise Significant fines are imposed frequently in cartel cases. Between rules regarding the standard of proof. However, according to settled 2017 and 2019, nine cartels were sanctioned, with fines amounting to Spanish case law, proof of an infringement must be beyond any reason- a total of €359.6 million (€317 million after the deduction of exemptions able doubt. and reductions under the leniency programme). Generally, fines have

228 Cartel Regulation 2021 © Law Business Research 2020 Cuatrecasas Spain increased significantly in recent years, particularly for larger undertak- • the performance of actions that terminate the infringement; ings, as a result of requiring the competition authorities • the effective non-application of the prohibited conduct; to calculate fines based on a percentage of total turnover rather than • the performance of actions intended to repair the damage affected sales. In this regard, 2019 represents almost half of the fines caused; and imposed by an amount in the last three years, with only two cartels being • the active and effective collaboration with the authority outside the sanctioned in that year (22 per cent of the total number of cartels fined). framework of the leniency programme. Fines imposed on directors have also progressively increased. In 2017 a single fine of €12,000 was imposed on one director. In 2018, three Once the CNMC has calculated the fine for each undertaking, a final directors were fined a total amount of €109,000 for participating in a check is made to ensure that the resulting fine is proportionate to the cartel. In contrast, during 2019, 22 directors received fines amounting to seriousness of the infringement by applying the proportionality limit, a total of €946,500 (€790,800 after deducting the exemptions under the which aims to calibrate the fine with the potential illicit profits. To date, leniency programme). this limit has been calculated as a percentage of the total affected sales. However, the Provisional Fines Guidelines appear to introduce a new Guidelines for sanction levels element of deterrence under which the estimated illicit profit can be 21 Do fining or sentencing principles or guidelines exist? If yes, multiplied by a factor between one and four according to the duration of are they binding on the adjudicator? If no, how are penalty the infringement and the size of the undertaking investigated. levels normally established? What are the main aggravating The Guidelines are provisional and may be revised in light of and mitigating factors that are considered? guidance from the courts. For the meantime, they provide additional legal certainty concerning the fines for possible infringements and In November 2018, the CNMC published provisional guidelines on complement the provisions of the LDC. However, there are still many setting fines for competition law breaches (the Provisional Fines uncertainties and several appeals have been lodged regarding the Guidelines). Guidance had been eagerly awaited since, in a judgment of calculation method of the CNMC. 29 January 2015, the Spanish Supreme Court annulled the Guidelines that the CNMC had issued in 2009, thus requiring the CNMC to change Compliance programmes the method used until then for setting fines and leading to the annul- 22 Are sanctions reduced if the organisation had a compliance ment and recalculation of a large number of penalties in the interim. programme in place at the time of the infringement? The Provisional Fines Guidelines are consistent with the practice the CNMC applied in the nearly four years following the judgment of the The CNMC has reiterated that the mere implementation of a compli- Supreme Court. In essence, the fine is calculated as a percentage of ance programme, whether ex-ante or ex-post concerning detection of between zero and 10 per cent of the total turnover of the infringing the violation, does not per se justify mitigating the company’s liability to undertaking. To calculate that process the CNMC establishes a general determine the fine. figure for the infringement of between zero and 10 per cent depending According to the CNMC’s recently published Compliance on the seriousness of the infringement as a whole. The circumstances Guidelines, the authority may assess, on a case-by-case basis, whether that are usually taken into account to calculate this general figure are: the pre-existence of a compliance programme, its improvement or its • characteristics of the market affected by the infringement; subsequent implementation after the investigation, can be considered as • market shares of the undertakings investigated; a mitigating circumstance to adjust the amount of the fine (eg, see cases • the scope of the infringement; S/0482/13, Car Manufacturers; S/DC/0544/15, International Removals; • the effect of the infringement on the market and any illicit profit; and S/DC/0557/15, Nokia; case S/DC/0565/15, Computer tenders; and S/ • any adoption of measures to enforce compliance with the cartel DC/0612/17, Industrial Assembly and Maintenance). agreement. In its guidelines, the CNMC indicates that it will normally view an effective ex-ante compliance programme more positively than the For cartel infringements, the CNMC generally applies a general figure promise to implement or improve an ex-post compliance programme, of between 5 per cent and 8 per cent as a basis for setting the fine, although it should be noted that according to those guidelines to benefit adjusting that figure to the individual circumstances of each under- from a compliance programme the party involved, in effect, would need taking to establish the individual figure. The circumstances that are to apply for leniency and collaborate fully in the competition authority usually taken into account to calculate this individual figure are: investigation. • the duration of the firm’s participation in the infringement; • the firm’s share of the infraction (the percentage of the affected Director disqualification sales that were by that firm); and 23 Are individuals involved in cartel activity subject to orders • any aggravating and mitigating circumstances. prohibiting them from serving as corporate directors or officers? As to the aggravating and mitigating factors, the LDC provides for the following aggravating circumstances (it is not a closed list): There are no specific provisions in this regard under Spanish law. • the repeated commission of infringements; • the position of leader in, or instigator of, the infringement; Debarment • the adoption of measures to impose or guarantee the enforcement 24 Is debarment from government procurement procedures of the infringement; and automatic, available as a discretionary sanction, or not • the lack of collaboration or obstruction of the inspection tasks, available in response to cartel infringements? notwithstanding the possible consideration of this conduct as an independent infringement. According to the Spanish Law No. 9/2017 of 8 November 2017 for Public Sector Contracts (LCSP), since 2015, persons sanctioned for serious Alternatively, the following mitigating circumstances, among others, infringements that distort competition can be banned from contracting shall also be taken into account to set the amount of the penalty: with public bodies for a maximum period of up to three years. This also www.lexology.com/gtdt 229 © Law Business Research 2020 Spain Cuatrecasas

applies to cartels and can be applied in addition to the other penalties PRIVATE RIGHTS OF ACTION provided for under Spanish rules. Article 72 of the LCSP states that the debarment can be imposed Private damage claims in two ways: 26 Are private damage claims available for direct and indirect • by a decision of the competition authority in which there is purchasers? Do purchasers that acquired the affected an express pronouncement on the scope and duration of said product from non-cartel members also have the ability to debarment; or bring claims based on alleged parallel increases in the • if the decision of the competition authority does not expressly rule prices they paid (‘umbrella purchaser claims’)? What level of on this issue, through the appropriate ad hoc procedure. damages and cost awards can be recovered?

In 2019, the CNMC sought to have undertakings involved in bid Any natural or legal person who has suffered harm caused by the anti- rigging banned from future public contracts for the first time (case S/ competitive conduct has the standing to bring a damages claim. That DC/0598/16, Electrificación y Electromecánica Ferroviarias). Since then, includes both direct and indirect purchasers. the CNMC has issued three more decisions by which it declares the The Supreme Court has expressly accepted the passing-on debarment as applicable (cases S/DC/0612/17 Industrial Assembly defence (in a judgment predating Directive 2014/104/EU (the Damages and Maintenance, SAMUR/02/18 Transporte Escolar Murcia, and S/ Directive), in the context of the Spanish sugar cartel). In that case, the DC/0626/18 Radares Meteorológicos). However, the CNMC has not fixed Supreme Court held that, for that defence to succeed, the defendant the scope or duration of the prohibition in any of these cases. Since the must prove both that the claimant passed on the overcharge down the LDC does not grant it the power to do so it instead has referred those supply chain to its customers, and that the overcharge did not result in cases to the State Advisory Board for Public Contracts. Those cases the claimant’s sales volume being reduced. Since then, that position has are currently suspended pending appeal. The Regional Competition been confirmed by new provisions of Law No. 15/2007 of 3 July for the Authority for Catalonia, however, has itself directly imposed the ban Defence of Competition (LDC) explicitly recognising that the defendant on two occasions (cases 94/2018 Licitacions Servei Meteorològic de in an action for damages can invoke as a defence mechanism towards Catalunya and 100/2018 AEROBUS), although the legal basis for those a claim for damages the fact that the claimant passed on all or part of bans is not clear. the overcharge resulting from the infringement of competition law. It is important to underline that the burden of proving that the overcharge Parallel proceedings was passed on is on the defendant, who may reasonably require disclo- 25 Where possible sanctions for cartel activity include criminal sure from the claimant or third parties (article 78.3 of the LDC). and civil or administrative penalties, can they be pursued Following the case-law of the ECJ’s Kone judgment, umbrella in respect of the same conduct? If not, when and how is the purchaser claims could also be pursued under Spanish law. So far, choice of which sanction to pursue made? there are no successful precedents in that respect. As to the level of damages, damages actions under Spanish law The CNMC cannot bring criminal proceedings based on competition are compensatory in nature and only the amount of damages that the infringements, those proceedings and the upcoming consequences are claimant provides evidence for can be granted. Those who have suffered administrative (eg, fines against companies or directors, or prohibitions harm can claim compensation for the damage suffered, which may for participating in contracts with the public administration). However, encompass: some conducts could both infringe competition law and constitute crim- • direct damage; inal activity (eg, the alteration of prices through fraud or bid rigging • lost profits; and (article 262 of the Spanish Criminal Code)). Criminal proceedings arising • interest. from anticompetitive conducts can be brought by any affected party or by the public prosecutor. If criminal proceedings are initiated, civil Nevertheless, the loser-pays principle applies under Spanish law claims will be suspended if: (article 394 of the Spanish Code of Civil Procedure). Although the • the parties’ pleas are based on one or more grounds that are being Spanish Code of Civil Procedure requires a party to win the case in its investigated as a criminal matter; and entirety to recover its costs, there is also Supreme Court case law has • the decision of the criminal court may have a decisive influence on established a doctrine of proportionate loser-pays, which allows costs the civil case (article 40 of the Spanish Code of Civil Procedure). to be recovered from the other party even if not all claims or defences are successful (judgment of the Supreme Court of 4 July 2017). If a Article 46 of the LDC also provides that the existence of a question specific court thinks that there were reasonable doubts of fact or law, referred for a preliminary ruling in criminal matters which cannot be it may decide not to impose costs on the losing party. A court may also left out of the decision or which directly affects the content of the deci- impose costs when it deems that a party has litigated with a bad inten- sion shall lead to a suspension of proceedings until the matter has been tion. According to Spanish law, recoverable costs include attorney fees, resolved by the corresponding criminal courts. expert fees and court fees, although these are often determined by the There is no provision under Spanish law that prevents the devel- court applying standard scales that do not fully cover real costs. opment of private and public (administrative) enforcement in parallel, although in practice most private enforcement cases take the form of Class actions follow-on actions. 27 Are class actions possible? If so, what is the process for such cases? If not, what is the scope for representative or group actions and what is the process for such cases?

In Spain, there are general rules on joinder of parties, which allow several claimants to file their claims in a single lawsuit. The Spanish Code of Civil Procedure also provides for a collective action regime that may be used not only in cases involving competition law infringements

230 Cartel Regulation 2021 © Law Business Research 2020 Cuatrecasas Spain but in any case in which a group of consumers or users have been • cooperate fully, continuously and diligently with the authority affected by the same illegal conduct. However, collective actions are throughout the administrative investigation procedure; rare; it is more common for law firms to bring large numbers of claims • end their involvement in the infringement (unless the authority on behalf of the many potentially affected plaintiffs, particularly because considers otherwise); and this allows those law firms to take advantage of the costs rules. • do not destroy evidence or disclose its intention to present such an application. COOPERATING PARTIES Going in second Immunity 30 How is the second cooperating party treated? Is there an 28 Is there an immunity programme? If so, what are the basic ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, elements of the programme? What is the importance of being how does it operate? ‘first in’ to cooperate? The level of reduction of the amount of the fine, provided that the appli- A leniency programme is available to any undertaking or person who cant complies with the requirements of article 66 of the LDC, depends participates or has participated in a cartel affecting all or part of the on the order in which the applications are received and the amount of Spanish market. The programme extends only to cartels and not to any value-added evidence provided, calculated in line with the following rule: other type of prohibited behaviour. • the first undertaking or individual that fulfils the legal requirements Full immunity is available for applicants that are the first to provide by providing value-added evidence may benefit from a reduction of the competition authority with evidence that may enable the authority between 30 per cent and 50 per cent depending on the amount of to prove the existence of a cartel or to provide sufficient legal grounds value that was added; to carry out an unannounced inspection (article 65 of (Law No. 15/2007 • the second undertaking or individual that may benefit from a of 3 July for the Defence of Competition (LDC))). Subsequent applicants reduction of between 20 per cent and 30 per cent, again depending may benefit from a reduction of the fine where the evidence provides on the value that was added; and significant added value above the evidence already in the possession of • the successive undertakings or individuals may benefit from a the authority (article 66 of the LDC). reduction of up to 20 per cent of the amount of the fine. An application for immunity must include all information available and at least sufficient information to correctly identify the cartel and its There is currently no immunity plus or amnesty plus treatment available. participants. Subject to that, the authority will grant, upon a reasoned request by the applicant, a deadline for submitting additional evidence if Approaching the authorities the applicant does not have all the necessary information at the time of 31 Are there deadlines for initiating or completing an application the application. Provided the evidence is submitted within the deadline, for immunity or partial leniency? Are markers available and the date of submission of the application for exemption is deemed to be what are the time limits and conditions applicable to them? the date of the initial request. To qualify for immunity an applicant must: There is no deadline for submission of a leniency application. Provided • cooperate fully, continuously and diligently with the authority the competition authority concerned does not have evidence concerning throughout the administrative investigation procedure; the cartel immunity may still be available. • end its involvement in the infringement (unless the authority However, once an application is made the authority may grant, requests otherwise); upon a reasoned request by the applicant, a deadline for submitting • not destroy evidence or disclose its intention to present a leniency additional evidence if the applicant does not have all the necessary application; and information at the time of the application. Provided the evidence is • not have been the instigator in the creation of the cartel. submitted within the deadline, the date of submission of the application for exemption is deemed to be the date of the initial request. Besides the immunity for fines in the administrative proceedings, leni- ency applicant also receives beneficial treatment in the framework of Cooperation follow-on damage claims. Article 73.4 of the LDC states that immu- 32 What is the nature, level and timing of cooperation that nity recipients are jointly and severally liable to their direct or indirect is required or expected from an immunity applicant? Is purchasers or suppliers, and other injured parties only if full compensa- there any difference in the requirements or expectations tion cannot be obtained from the other undertakings that were involved for subsequent cooperating parties that are seeking partial in the same infringement. leniency?

Subsequent cooperating parties According to article 65 of the LDC, the applicant must cooperate fully, 29 Is there a formal programme providing partial leniency for continuously and diligently with the National Commission for Markets parties that cooperate after an immunity application has been and Competition (CNMC) throughout the investigation and must end made? If so, what are the basic elements of the programme? its participation in the alleged infringement the moment it provides the If not, to what extent can subsequent cooperating parties corresponding evidence to the competition authority (except in those expect to receive favourable treatment? cases where the authority deems necessary for such participation to continue to preserve the effectiveness of an inspection). Additionally, The competition authority may reduce the amount of the fine corre- the company must have neither destroyed evidence related to the appli- sponding to undertakings or natural persons that, without meeting the cation nor revealed its intention to apply for leniency to third parties. requirements to qualify for full exemption of the fine: Finally, the applicant must not have forced other companies to take part • provide evidence of the alleged infringement which represents in the infringement. significant added value concerning the evidence already in the The same obligations apply for applicants for reduction or possession of the competition authority; partial leniency, except for the one related to the coercion of other www.lexology.com/gtdt 231 © Law Business Research 2020 Spain Cuatrecasas

undertakings, and, additionally and most importantly, applicants must Until that legislative reform is adopted, the current state of the law provide evidence of the alleged infringement that offer significant added is that parties subject to a competition investigation may in theory offer value concerning that element already known to the authority (article commitments that solve the effects on competition and that ensure that 66 of the LDC). the public interest is guaranteed to terminate the proceedings without Article 52 of Royal Decree 261/2008 of 22 February (RDC) provides the declaration of the existence of the infringement and therefore with for the following obligations that must be met to consider that the leni- no fine. However, this is not possible for cartel cases or other infringe- ency applicant has cooperated ‘fully continuously and diligently’ with ments with serious anticompetitive effects. the investigation: • the applicant has provided the Directorate for Competition without Corporate defendant and employees delay with all relevant information and evidence relating to the 35 When immunity or partial leniency is granted to a corporate alleged cartel in its possession or available to it; defendant, how will its current and former employees be • the applicant has remained at the disposal of the Directorate for treated? Competition to respond without delay to any request that may contribute to the clarification of the facts; The immunity or reduction of the amount of the fine corresponding to an • the applicant has allowed the Directorate for Competition to undertaking shall be applicable, in the same percentage, to the fine that conduct interviews with the company’s current employees and may be imposed on its representatives or on the persons that comprise managers and, where appropriate, with former managers; the management bodies that have taken part in the agreement or deci- • the applicant has refrained from destroying, falsifying or sion, at the undertaking’s request and providing they have cooperated concealing relevant information or evidence relating to the alleged with the competition authority. cartel; and • the applicant has refrained from disclosing the submission of the Dealing with the enforcement agency application for exemption or reduction of the amount of the fine, as 36 What are the practical steps for an immunity applicant well as the content of the application, before the notification of the or subsequent cooperating party in dealing with the statement of objections or the time agreed with the Directorate for enforcement agency? Competition, as appropriate. Article 47 of the RDC states that the Directorate for Competition will Confidentiality review the information and evidence submitted by the immunity applicant 33 What confidentiality protection is afforded to the immunity and, if it concludes that the application complies with the requirements applicant? Is the same level of confidentiality protection in article 65.1 of the LDC (being the first company to provide evidence applicable to subsequent cooperating parties? What that allows the authority to conduct an inspection or to prove a cartel), it information will become public during the proceedings and will grant the conditional exemption from the payment of the fine. when? At the end of the proceedings, if the leniency applicant has complied with the requirements established in article 65.2 of the LDC The competition authorities must treat the submission of a leniency (full cooperation with the investigation, terminating its participation application and the identity of the leniency applicant as confidential. The in the infringement, not having destroyed evidence or disclose the other parties will have access to the content of the leniency application, submission of the application and not having forced other companies which forms part of a separate confidential file, only after the Statement to participate in the infringement), the Council of the CNMC will exempt of Objections is issued and for the parties to submit observations, but the leniency applicant from payment of the fine in the decision ending they will not be able to obtain copies of the oral or written statements proceedings, following the Proposal for a Resolution by the Directorate (they can obtain copies of the annexes submitted along with the applica- for Competition. tion). Instead, they will have to access to the leniency application at the Regarding applications for reduction, article 50 of the RDC states premises of the competition authority. that the Directorate for Competition will not examine the evidence The same regime is applicable both for immunity applicants and for submitted by an undertaking or natural person applying for a reduc- subsequent cooperating parties. tion of a fine without first deciding on conditional immunity relating In proceedings under judicial review, the competition authorities to the same cartel. The article further states that the Directorate for will not provide courts with copies of the leniency statements unless Competition, no later than the notification of the Statement of Objections, specifically required to do so, and only if requested by the courts it will inform the leniency applicant of its proposal to reduce the fine, will send them on a confidential basis granting their protection from provided that the applicant has fulfilled the requirements in article 66.1 third parties. of the LDC (the evidence submitted proved to have significant added value for the investigation, the applicant cooperated fully with the inves- Settlements tigation, the applicant terminated its participation in the infringement 34 Does the investigating or prosecuting authority have the at the time of applying and did not destroy evidence or disclose the ability to enter into a plea bargain, settlement, deferred submission of said application to third parties). prosecution agreement (or non-prosecution agreement) or The Directorate for Competition may also accept an application for other binding resolution with a party to resolve liability and reduction after the notification of the Statement of Objections and, if that penalty for alleged cartel activity? What, if any, judicial or is the case, it will inform the leniency applicant of its proposal for reduc- other oversight applies to such settlements? tion of the fine in the Proposal for a Resolution. Finally, the Council of the CNMC may or may not accept the proposed reduction, and will set Spanish law does not establish any settlement procedure for cartel the percentage of reduction in its final decision. cases, although the LDC is currently under review and, if the legislative All the foregoing applies equally to proceedings before the Regional proposal is approved, the new version will provide for a cartel settle- Competition Authorities. ment procedure (with a discount of the fine up to 15 per cent) in line with EU legislation.

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DEFENDING A CASE International double jeopardy 42 Do the sanctions imposed on corporations or individuals take Disclosure into account any penalties imposed in other jurisdictions? In 37 What information or evidence is disclosed to a defendant by private damage claims, is overlapping liability for damages in the enforcement authorities? other jurisdictions taken into account?

Under Spanish competition law, all parties involved in antitrust investi- Sanctions imposed in other jurisdictions are not taken into account. As gations have the right to access the file once the investigation has been for damages claims, the general rule is that the same damage cannot be formally opened and to obtain individualised copies of all the documents recovered twice, so even if an infringer is sued in a different jurisdiction in it, except for the business secrets of other interested parties or third because that infringer participated in the anticompetitive conduct, that parties and any other confidential information. In this regard, Spanish could not lead to an unfair enrichment of the victims. The new regime competition law allows for confidential treatment of business secrets under Royal Decree–law 9/2017 specifically establishes that each of the during the investigation and in the publication of the decision, although undertakings that have jointly infringed competition law is jointly and confidential treatment may be denied on public interest grounds where severally liable for the harm caused. In line with the Damages Directive, the information concerned is necessary for the authorities to prove an exception is provided for small and medium-sized enterprises and their case. immunity recipients (article 73 of the Spanish Competition Act). If a joint Leniency applications receive special treatment and form a sepa- and several defendant (even if that defendant is based in a different rate file, to which parties to the proceedings may only access after a jurisdiction) has paid some debt (ie, damages to the claimant or victim), Statement of Objections has been issued. No copies of leniency applica- it has the right to claim reimbursement from its co-infringers for the tions or statements can be obtained, but parties to the proceedings can relative part corresponding to each of them. only have access in the premises of the competition authority. Getting the fine down Representing employees 43 What is the optimal way in which to get the fine down? 38 May counsel represent employees under investigation in addition to the corporation that employs them? When should There is no doubt that the optimal way at present to minimise the a present or past employee be advised to obtain independent fines themselves is via the leniency programme. Cooperation with the legal advice or representation? investigation short of the leniency programme does not seem to have a significant impact on the amounts of the fine, while compliance initia- Absent a conflict of interests, there is no formal requirement under tives, whether before or after the investigation has commenced, will Spanish competition or requiring a company and its typically only be given credit if they coincide with a leniency application employees to be represented by separate counsel. Neither do the (which, for the National Commission for Markets and Competition, is a competition authorities have the power to require separate legal logical consequence of a commitment to compliance). representation. UPDATE AND TRENDS Multiple corporate defendants 39 May counsel represent multiple corporate defendants? Does Recent cases it depend on whether they are affiliated? 44 What were the key cases, judgments and other developments of the past year? There are no specific regulations on this matter. As such, and absent a conflict of interests, counsel is not prevented from representing multiple The most relevant developments during 2019 regarding cartel infringe- corporate defendants which are parties to the same proceedings. ments were the following.

Payment of penalties and legal costs Electrificación y Electromecánica Ferroviarias 40 May a corporation pay the legal penalties imposed on its National Commission for Markets and Competition (CNMC) decision of employees and their legal costs? 14 March 2019 in case S/DC/0598716, Electrificación y Electromecánica Ferroviarias where the CNMC fined 15 companies and 14 individuals for There are no specific provisions on this matter. As such, a corporation is their participation in three different cartels for the allocation of public not forbidden from paying the legal penalties imposed on its employees. tenders related to railway infrastructures for conventional and high- speed lines during 14 years. The companies were fined a total of €118 Taxes million and the individuals received sanctions amounting to €666,000. 41 Are fines or other penalties tax-deductible? Are private It was also the first time that the CNMC sought to have undertakings damages payments tax-deductible? involved in bid rigging banned from future public contracts for the first time and referred the decision to the corresponding administra- Fines imposed by a public authority are not deductible. However, tive body to fix the scope and duration of the prohibition. The parties contractual penalties, including payments for damages, are deductible. have, however, appealed the decision, some of them have asked for the suspension of the payment of the fines as well as any further steps regarding the debarment. The decision was prompted by a leni- ency application for immunity and a further company also cooperated within the leniency programme. Both undertakings benefitted from the corresponding exemptions and reductions on the fines, as did some of their managers.

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Montaje y Mantenimiento Industrial The CNMC decision of 1 October 2019 in case S/DC/0612/17, Montaje y Mantenimiento Industrial where the CNMC fined 19 industrial assembly and maintenance companies for taking part in a cartel from 2001 until 2017 to allocate private tenders of around 20 clients, mainly in the oil and gas sector. In this case, the CNMC imposed fines of up to €53.2 million on the companies and also fined eight directors with a total of €280,500. Again, the CNMC declared applicable the prohibition to contract with the public administration (even if the clients concerned were private compa- Andrew Ward [email protected] nies) and sent the decision to the Advisory Board for Public Procurement. The decision has also been appealed before the High Court. Irene Moreno-Tapia [email protected] Fabricantes de automóviles Carlos Alberto Ruiz High Court judgments of December 2019, concerning CNMC deci- [email protected] sion of 23 July 2015 in case S/0482/13 – Fabricantes de automóviles Marta Simón where in 2015, the CNMC imposed fines amounting to €171 million on [email protected] 21 manufacturers and distributors of car brands and two consultancy firms for having exchanged commercially sensitive information in the Spanish market for the distribution and after-sales services of vehicles. Diagonal, 191 The CNMC qualified these conducts as a cartel, even if the informa- 08018 Barcelona tion exchanged did not include prices or future sales quantities and Spain the investigation was prompted by the information supplied under the Tel: +34 932 905 500 leniency programme by one of the car manufacturers. Most of the car C/ Almagro, 9 manufacturers appealed the decision before the High Court on the basis 28010 Madrid that the decision had wrongfully qualified the exchanges of information Spain as a cartel because they never concerned prices or had as their object Tel: +34 915 247 100 the fixing of prices. In December 2019, the Spanish High Court dismissed the appeals (except for the one filed by one of the car manufacturers) www.cuatrecasas.com and confirmed the CNMC decision and its assessment regarding the qualification as a cartel of the exchange of information and the position of the consultancy firms as cartel facilitators. The judgements by the High Court have been appealed before the Supreme Court. • the maximum amount of fines that can be imposed on legal Additionally, and following a public consultation, in June 2020, the representatives and directors for participation in cartels will be CNMC published its awaited Compliance Guidelines concerning anti- increased to €400,000 (up from €60,000); trust infringements, containing the criteria that the authority will take • the possibility of settlement decisions, in which parties receive a into consideration when analysing the effectiveness of a compliance discount on the fine of up to 15 per cent in return for accepting the programme. The Guidelines also consider the possibility of obtaining responsibility of an infringement will be introduced; a reduction in the fines imposed by the CNMC, and other benefits, to • the maximum duration of infringement procedures in cartel cases encourage Spanish businesses to adopt compliance programmes. from 18 months to a maximum of 24 months. Additionally, the time for undertakings to submit observations to Statements of Regime reviews and modifications Objections and Proposals for a Resolution will be extended from 15 45 Are there any ongoing or anticipated reviews or proposed days to one month; and changes to the legal framework, the immunity/leniency • a specific procedure for interrupting investigation deadlines when programmes or other elements of the regime? other competition authorities or the European Commission open a parallel investigation, or during a court review, is introduced. In July 2020, the Spanish Government published a draft proposal to amend the Spanish Law for Law No. 15/2007 of 3 July for the Defence Also, the draft provides for improved cooperation with the European of Competition (LDC). The main purpose of the draft is to implement Commission and other competition authorities, including sharing the ECN+ Directive into Spanish legislation, but the Government has confidential information or authorising other officials to assist in also taken the opportunity to introduce additional changes to the dawn-raids, and strengthens investigation powers of the competi- current LDC. tion authority. The possibility for the authority not to pursue every The draft proposal was open for consultation until 15 September complaint, for strategic reasons or otherwise, is also provided for in 2020 and is currently undergoing the legislative steps corresponding to the draft proposal. the approval of a final version draft to be submitted to parliament. The main changes introduced in the draft proposal that can be most relevant Coronavirus for cartels infringements can be summarised as follows: 46 What emergency legislation, relief programmes, enforcement • all anticompetitive agreements (essentially article 101 of the policies and other initiatives related to competitor conduct TFEU) and abuses (article 102 of the TFEU) will be considered very have been implemented by the government or enforcement serious infringements and will therefore be punishable with fines authorities to address the pandemic? What best practices are of up to 10 per cent of the turnover of the infringing undertaking advisable for clients? in the financial year before the imposition of the fine. Fines will be calculated taking into account the worldwide turnover of the No formal decisions to exempt filings or conduct from an investigation companies involved in the infringement proceedings; were taken during the covid-19 pandemic.

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The CNMC published on its website the joint statement by the European Competition Network on the application of competition law during the emergency, in which it declared that it would not actively intervene against necessary and temporary measures put in place to avoid shortages of supply. On 31 March 2020, the CNMC set up a dedicated email address encouraging consumers to report anticompetitive practices and submit enquiries related to the covid-19 pandemic. The CNMC subsequently declared that this mailbox had been successful, with over 500 complaints received in its first two months. The CNMC also confirmed that it had been contacted by companies with doubts as to the enforcement of competition rules and that it had given guidance where necessary, reminding operators of the limits imposed by competition rules on coop- eration agreements, and that any temporary measures intended to deal with this exceptional situation must be abolished as soon as normality is restored in the sector. The CNMC announced that most consultations on cooperation agreements it had received during the first months of the pandemic were related to the financial sector, the insurance sector, the health sector and the provision of assistance services. The CNMC is providing informal advice, analysing the proposals submitted by the companies, the possible efficiencies and eventual risks, under article 101(3) of the Treaty on the Functioning of the European Union and the Temporary Framework for assessing antitrust issues stemming from the current covid-19 outbreak approved by the European Commission. In May 2020, the CNMC adopted an updated version of its Plan of Action for 2020 in the context of the covid-19 pandemic, to include addi- tional considerations regarding potential breaches of competition law as a result of the crisis.

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Johan Carle, Fredrik Sjövall and Stefan Perván Lindeborg Mannheimer Swartling

LEGISLATION AND INSTITUTIONS The proposed changes include provisions to grant the SCA deci- sion-making powers for issuing competition fines, as well as other Relevant legislation procedural fines levied for non-cooperation in the context of an investi- 1 What is the relevant legislation? gation. The proposal is being consulted upon during 2020.

The Swedish rules on anticompetitive agreements are laid down in the Substantive law Swedish Competition Act (2008:579) (the Act), which entered into force 4 What is the substantive law on cartels in the jurisdiction? on 1 November 2008 and replaced the previous legislation from 1993. An English version of the Act is accessible through the website of the Swedish law is, in general, consistent with EU competition law. Accordingly, Swedish Competition Authority (SCA). the substantive provisions of the Act largely correspond to the equivalent The Act contains two general prohibitions: one against anticompeti- provisions in the Treaty on the Functioning of the European Union (TFEU). tive agreements between undertakings (Chapter 2, section 1) and one The Act contains two general prohibitions, one against anticompeti- against the abuse of a dominant position (Chapter 2, section 7). The Act tive agreements between undertakings (Chapter 2, section 1) and one is modelled on and, as an extension of that, block against the abuse of a dominant position (Chapter 2, section 7). The Act exemptions have also been adopted in Sweden in the form of separate also provides for the control of concentrations (Chapter 4). The purpose regulations largely incorporating their EU counterparts. of the Act is to eliminate and counteract obstacles to effective competi- The Swedish rules on anticompetitive agreements are interpreted tion with regard to the production of and trade in goods and services. in accordance with case law from the European Commission, as well as The ultimate aim of the legislation is to promote growth and efficiency the Court of Justice of the European Union. in the Swedish market. The Act, like its TFEU equivalent, provides no legal definition of Relevant institutions a ‘cartel’. In Swedish doctrine and case law, the term ‘cartel’ is gener- 2 Which authority investigates cartel matters? Is there ally applied to horizontal agreements and concerted practices covering a separate prosecution authority? Are cartel matters hardcore restrictions of competition, such as price-fixing, limitations on adjudicated or determined by the enforcement agency, a production or sale, market allocation and bid rigging. separate tribunal or the courts? Cartels may violate the general prohibition against restrictive agreements found in Chapter 2, section 1 of the Act. There are two main The SCA investigates cartel matters and other suspected breaches of exceptions to this. the Act. The SCA is an independent governmental body. It does not have First, to fall under the prohibition against anticompetitive agree- the power to impose fines, other than in settlement-style cases. ments, the agreement must restrict competition to an appreciable Following an investigation, if the SCA decides that a breach has extent. Like the European Commission, the SCA has published a Notice occurred, it must file an application before the and Market Court on Agreements of Minor Importance (the Notice). According to the (other than when its findings are accepted by the investigated parties). Notice, agreements between actual or potential competitors where This kind of application leads to civil litigation under the general proce- the parties’ combined market share does not exceed 10 per cent and dural framework. agreements between non-competitors, where none of the parties has a There are no criminal sanctions for cartel activity or any other market share exceeding 15 per cent, normally fall outside the prohibition violation of the Act and there is no separate prosecution authority. The against restrictive agreements. Where the individual turnover of each of SCA is independent of the European Commission but is required to the parties does not exceed 30 million kronor, the 15 per cent threshold cooperate with it. applies irrespective of the type of agreement. However, according to the Notice, these principles of de minimis do not apply to agreements that Changes contain ‘hardcore’ restrictions. More specifically, typical cartels of the 3 Have there been any recent changes, or proposals for change, kind referred to above are normally prohibited, even where the market to the regime? shares are below the thresholds set out in the notice. Second, Chapter 2, section 2 of the Act provides for a directly appli- In February 2020, the Swedish government published a proposal for the cable legal exemption. The conditions for exemption are the same as in legislative amendments required to implement Directive (EU) 2019/1 article 101(3) TFEU: of the European Parliament and of the Council of 11 December 2018 to • the agreement must contribute to improving the production or empower the competition authorities of the member states to be more distribution of goods, or promote technical or economic progress; effective enforcers and to ensure the proper functioning of the internal • the agreement must pass on to consumers a fair share of the market (the ECN+ Directive). resulting benefits;

236 Cartel Regulation 2021 © Law Business Research 2020 Mannheimer Swartling Sweden

• the agreement must not impose on the undertakings concerned Industry-specific provisions restrictions that are not indispensable to the attainment of the 9 Are there any industry-specific infringements? Are there any positive effects; and industry-specific defences or exemptions? • the agreement must not afford the undertakings the possibility of eliminating competition in respect of a substantial part of the prod- The legal framework in Sweden contains similar exemption rules as the ucts or services in question. EU’s competition law regime on, for example, the automotive sector. Agricultural associations and taxi undertakings are also, to some extent, Joint ventures and strategic alliances covered by special rules. 5 To what extent are joint ventures and strategic alliances With respect to hardcore cartels, however, there are no industry- potentially subject to the cartel laws? specific bans, exemptions, or any specific exemptions applicable to government-sanctioned or regulated conduct. Nonetheless, the Act will The Act is applicable to non-full function joint ventures, that is to say, not apply to behaviour that is an intended result of legislation or an strategic alliances which are not structured in such a way as to trigger inevitable consequence thereof. the merger control rules. The rules on anticompetitive agreements would also be considered Government-approved conduct within the context of the merger rules when considering any potential 10 Is there a defence or exemption for state actions, spill-over effects of joint ventures, for example, as regards the scope for government-approved activity or regulated conduct? the concentration to lead to coordination between parties active in the same or connected markets as the joint venture. Anticompetitive conduct can be exempted if national legislation requires it of undertakings. In practice, the SCA rarely classes anticompetitive APPLICATION OF THE LAW AND JURISDICTIONAL REACH behaviour as being the direct consequence or the inevitable result of legislation, excluding anticompetitive conduct from the scope of Chapter Application of the law 2 section 1 of the Act. 6 Does the law apply to individuals, corporations and other entities? INVESTIGATIONS

The Swedish Competition Act (2008:579) (the Act) applies to agreements Steps in an investigation between undertakings. According to Chapter 1, section 5 of the Act the 11 What are the typical steps in an investigation? term ‘undertaking’ includes any natural and legal persons engaging in commercial or economic activity, regardless of its legal status and the When the Swedish Competition Authority (SCA) obtains information that way in which it is financed. It is interpreted in the same way as under suggests the existence of a cartel, either via ex officio means or from European Union competition law. Activities consisting of the exercise of a complaint or an informant (ie, via leniency applications or tip-offs), it public authority are excluded. Furthermore, the Act does not apply to must decide whether to proceed with an investigation. If there is suffi- agreements between employers and employees relating to and cient evidence to suggest the existence of a cartel, the SCA may file other conditions of employment. an application with the Patent and Market Court for authorisation to conduct an inspection (a dawn raid) at the premises of one or more of Extraterritoriality the suspected parties. 7 Does the regime apply to conduct that takes place outside the If the information collected during the dawn raid supports the jurisdiction (including indirect sales into the jurisdiction)? If suspicion, the SCA will continue the investigation. At this stage, it is so, on what jurisdictional basis? likely that the SCA will contact customers and competitors uninvolved in the suspected wrongdoing, as well as issue requests for information The Act prohibits agreements between undertakings that have as their and carry out interviews with the investigated parties to develop a case. object or effect an appreciable prevention, restriction or distortion of If the SCA considers that it has sufficient evidence to prove the competition. An agreement between undertakings situated outside existence of the suspected cartel, it will issue a statement of objections Sweden may be prohibited under the Act if the agreement has actual or to the suspected undertakings setting out its position and the evidence potential effects in Sweden according to the effects doctrine. it has obtained. After having received the response of the undertakings In practice, this means that a cartel may be prohibited under (and providing that its suspicions remain), the SCA can: Swedish law and the undertakings involved pursued under the Act if • order the undertakings to cease the violation of the Act, subject to a the cartel has appreciable effects on competition in Sweden, even if fine for non-compliance (ie, issue a cease-and-desist order); the cartel in question is organised outside Sweden or the undertakings • sue the undertakings before the Patent and Market Court, involved are not Swedish. requesting a judgment ordering the undertakings to pay an admin- However, public international law imposes restrictions on the istrative fine for infringing the Act; or exercise of extraterritorial jurisdiction under the Act and the Swedish • in the event the undertakings do not contest the SCA’s claim, issue Competition Authority (SCA) is unlikely to take action against foreign an order for the undertaking to pay fines, without needing to sue. undertakings unless such action can be enforced. Resolving contentious cartel matters can take a number of years from Export cartels start to finish. The only time limit to which the SCA is subject to in this 8 Is there an exemption or defence for conduct that only affects regard is that fines may only be imposed if the SCA’s application is customers or other parties outside the jurisdiction? served on the undertaking in question within five years of the date on which the violation ended. The prohibition under the Act is only applied to agreements that have In 2019, the average period of review for prioritised cases not actual or potential effects on competition in Sweden. resulting in sanctions was 248 days and for those resulting in some kind of sanction, 721 days. www.lexology.com/gtdt 237 © Law Business Research 2020 Sweden Mannheimer Swartling

Investigative powers of the authorities the investigative order was made without consulting the undertaking 12 What investigative powers do the authorities have? Is court concerned. Since the latter is typically the case, the SCA does not approval required to invoke these powers? normally wait for legal counsel to arrive before starting.

The SCA has the competence to: INTERNATIONAL COOPERATION • order a suspected undertaking, or any natural or legal person, to provide information and documents at its disposal; Inter-agency cooperation • ask any person considered likely to have useful information to 13 Is there cooperation with authorities in other jurisdictions? appear before it for interrogation; and If so, what is the legal basis for, and extent of, such • undertake an on-the-spot investigation (dawn raid) at the premises cooperation? of an undertaking. Under European Union law, the Swedish Competition Authority (SCA) A fine may be imposed on an undertaking for non-compliance with an must cooperate with the European Commission and assist it in gath- order to provide information, documents, etc or obstructing a dawn raid. ering information from undertakings in Sweden. In addition, under In the case of a dawn raid, the SCA must file an application with Regulation 1/2003, the SCA must cooperate with the national competi- the Patent and Market Court. The authorisation will only be granted if tion authorities of other EU member states within the framework of the there is reason to believe that an infringement has been committed, the European Competition Network (ECN). The ECN allows for exchange of undertaking has failed to comply with an earlier order to provide infor- information on current investigations and assistance through evidence mation, or if there is a risk of evidence being withheld or tampered with. sharing and investigative measures. There is also a Nordic cooperation Moreover, the importance of the measure being taken must outweigh agreement between Sweden, Denmark, Finland, Greenland, Iceland and the disruption or other inconveniences caused to the party affected by Norway which formalises and strengthens the existing framework for it. Such an application to the Patent and Market Court can be granted information exchange and other inter-authority collaboration to improve without consulting the suspected undertakings in advance if there is a Nordic enforcement during cartel, abuse of dominance and merger risk that this would reduce the value of the investigation (in particular, control investigations. where the undertakings are expected to destroy or hide evidence if The SCA also cooperates with other national competition authori- they are informed about the investigation). Typically, dawn raids are ties outside the ECN and the Nordic agreement. On a global level, such unannounced, that is to say, they proceed without the suspected under- cooperation takes place within the frameworks of the International takings having been alerted in advance. Competition Network (ICN), the Organisation for Economic Co-operation During a dawn raid, the SCA may examine and take copies of, and Development’s Competition Committee and the United Nation’s or extracts from, accounting records and other business documents Conference on Trade and Development, with the purpose of exchanging (including digital records), request oral explanations from representa- experience regarding methodology and to further the understanding of tives or employees of the undertakings and investigate the undertakings’ competition law matters and the value of effective competition policies. premises, property and means of transportation. There is also scope within the rules for the SCA to enter into other Subject to approval by the Patent and Market Court, dawn raids legal assistance treaties, for example with non-European Economic may also be carried out in the private homes of board members and Area countries. If such a treaty were entered into, the SCA may, upon employees of the undertaking in question. Provided the company application by an authority in a state covered by the agreement, order under investigation consents, the SCA usually ‘mirrors’ (creates exact an undertaking to provide information, documents and other materials, copies of) digitally stored material in order to review the material at the and require persons who are thought to be able to provide information SCA’s premises. to attend interrogations. To ensure that the undertaking provides the SCA’s officials with Furthermore, at the request of such an authority, the Patent and full access to the premises, the SCA officials are usually accompanied Market Court may, upon written application by the SCA, allow it to carry by representatives of the Swedish Enforcement Authority (a public out a dawn raid to assist the other state in its investigation into whether authority more often involved in debt collection, which is also empow- a party has infringed the competition rules of that state if the following ered to seal business premises). conditions are met: The SCA may not examine or take copies of or extracts from • there is reason to believe that an infringement has been committed; documents that are covered by legal professional privilege, or collect • the conduct under investigation would have been found to infringe documents that are not covered by the scope of the court authorisation. Chapter 2, sections 1 or 7 of the Act or of articles 101 or 102 of the In the event of a dispute as to whether a certain document is privileged, Treaty on the Functioning of the European Union (TFEU) if those the document shall immediately be sealed and sent to the Patent and rules had been applied to the conduct; Market Court by the SCA. The Court shall decide, without delay, whether • there is a particular reason to believe that evidence is in the the document is privileged. possession of the party to which the request refers; If there is a disagreement about whether material falls within the • the party in question does not comply with an order to provide scope of the court authorisation, the appropriate procedure for the information, documents, etc, or there is otherwise a risk that SCA is to seek assistance from the accompanying officials from the evidence will be withheld or tampered with; and Swedish Enforcement Authority. This was reaffirmed in a case from the • the importance of the action being taken is sufficient to outweigh the Swedish Supreme Court in 2018. The Supreme Court also confirmed disruption or other inconvenience caused to the party affected by it. that the measures taken by the SCA during a dawn raid are inadmis- sible for judicial review under Swedish law but that parties are, in any In 2019, the SCA joined the framework for fair and effective regulatory event, sufficiently protected as decisions by the Swedish Enforcement processes recently adopted by the ICN. The aim of the framework is to Authority are subject to appeal. harmonise principles for efficient supervisory processes. An undertaking may send for legal counsel when it learns its prem- ises is about to be inspected. The investigation may not start until the lawyers have arrived, unless it would be unduly delayed by the wait or

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Interplay between jurisdictions review the case on its merits. Leave to appeal to the Patent and Market 14 Which jurisdictions have significant interplay with your Court of Appeal will be granted: jurisdiction in cross-border cases? If so, how does this affect • if there is reason to question the accuracy of the Patent and Market the investigation, prosecution and penalising of cartel activity Court’s decision; in cross-border cases in your jurisdiction? • to determine the accuracy of the Patent and Market Court’s decision; • if the determination of the Court may be of importance as a The SCA cooperates closely with the European Commission and precedent; or competition authorities in other EU member states, in particular • there are other extraordinary reasons to grant a further appeal. the other Nordic competition authorities via the Nordic cooperation agreement. An appeal must be submitted in writing within three weeks of the Within the framework of the ECN the SCA assists and is assisted by pronouncement of the judgment or from when the plaintiff received the other competition authorities within the EU. In accordance with Article judgment of the Patent and Market Court. 11 of Regulation (EC) No 1/2003, the SCA has, among other things, an Judgments by the Patent and Market Court of Appeal may be obligation to inform the European Commission, as well as the other appealed to the Supreme Court, subject to leave from the Patent and competition authorities in the EU, after initiating a formal investigation Market Court of Appeal, provided that the determination of the Supreme measure concerning article 101 and 102 TFEU. Moreover, the members Court is of importance as a precedent. The Supreme Court’s leave to of the ECN may, under certain conditions, exchange confidential informa- appeal is required as well, which is typically only granted in excep- tion and use such information as evidence, as well as provide assistance tional cases. by conducting dawn raids or interviews. SANCTIONS CARTEL PROCEEDINGS Criminal sanctions Decisions 19 What, if any, criminal sanctions are there for cartel activity? 15 How is a cartel proceeding adjudicated or determined? There are no criminal sanctions for cartel activity or any other violation The Swedish Competition Authority (SCA) does not have the power to of the Swedish Competition Act (2008:579) (the Act). impose administrative fines other than in non-contentious cases. If the SCA decides to sanction companies for cartel activities and the under- Civil and administrative sanctions takings do not accept the fines, the SCA will have to file an application 20 What civil or administrative sanctions are there for cartel before the Patent and Market Court. Hence, such an application results activity? in civil litigation. A decision by the SCA to issue a cease-and-desist order can be The elements of an agreement or practice that violate the Act are void appealed to the Patent and Market Court. and unenforceable. The Swedish Competition Authority (SCA) may order cartel members to cease the cartel activity, subject to a fine for non- Burden of proof compliance with the order. The imposition of the fine requires a decision 16 Which party has the burden of proof? What is the level of by the Patent and Market Court. proof required? Furthermore, the cartel members may, as an administrative sanc- tion, upon application by the SCA, be ordered by the Patent and Market The burden of proof lies with the SCA, or, in the case of private damages Court to pay fines as an economic sanction for their illegal activities. The claims based on violations of the Act, normally with the party claiming SCA itself has the right to impose binding fines on undertakings where to have suffered damage. the undertaking in question does not dispute the fine. The SCA must prove that the conditions are fulfilled for imposing A fine may not exceed 10 per cent of the turnover of the under- a fine. The Patent and Market Court of Appeal has held that the level of taking concerned during the previous financial year. There is no lower proof for the SCA is high, but not as high as that required in criminal limit to the fine. Unlike under EU competition law, only the turnover of cases (ie, not beyond a reasonable doubt). the violating undertaking itself is taken into account in this calculation, rather than the turnover of all undertakings belonging to the same group. Circumstantial evidence Since 2013, the SCA has lodged about 15 court cases on compe- 17 Can an infringement be established by using circumstantial tition fines concerning alleged abuses of a dominant position and evidence without direct evidence of the actual agreement? anticompetitive agreements, including a few ‘pure’ cartel cases. The SCA has also used its authority to issue binding fines in non-contentious The Swedish process is governed by the principle of free considera- cases on a number of occasions. tion of evidence. Therefore, circumstantial evidence can also be used to The highest individual fine yet imposed in Sweden amounted to establish an infringement of competition rules. 200 million kronor as a result of a cross appeal in the Asphalt case. On a practical level, proving an infringement on circumstantial Following the 2007 judgment of the Stockholm District Court, total fines evidence alone would be challenging. The SCA must prove that the on all nine companies involved amounted to approximately 500 million conditions to impose a fine are fulfilled and the level of proof the SCA kronor after all appeals were settled. Although the amount is high for must meet is high. Sweden, it is lower than the 1.2 billion kronor sought by the SCA. More recent fines have not been of that magnitude, with many cases being Appeal process resolved in other ways. 18 What is the appeal process? The Act also contains the possibility of imposing an injunction against trading for persons who have participated in serious breaches of Chapter The Patent and Market Court is the court of first instance. Its judgments 2, Section 1 or Article 101 Treaty on the Functioning of the European Union can be appealed to the Patent and Market Court of Appeal, which will (TFEU), provided such injunction is necessitated by the public interest. www.lexology.com/gtdt 239 © Law Business Research 2020 Sweden Mannheimer Swartling

Guidelines for sanction levels involved in the management of a business. An injunction against trading 21 Do fining or sentencing principles or guidelines exist? If yes, may be issued against members or alternate members of a board of are they binding on the adjudicator? If no, how are penalty directors, managing directors and deputy managing directors provided levels normally established? What are the main aggravating the person committed the wrongdoing in respect of business activities and mitigating factors that are considered? or was serving in such a post at the time of the infringement of the competition rules. An injunction against trading can also be imposed on Like the European Commission, the SCA has published a similar notice individuals who, in another capacity, have conducted the management on its methodology for setting fines (the Fining Guidelines). of a business, or who held themselves out to third parties as respon- According to the Fining Guidelines, a fine may not exceed 10 per sible for a business. cent of the turnover of the undertaking concerned during the previous The infringement must therefore have been of a serious nature and year. The SCA will not impose fines in minor cases. Fines are primarily of relatively long duration for an injunction to be imposed. Therefore, determined according to the gravity and duration of the infringement. when assessing if an injunction against trading is necessitated by the The degree of gravity is measured by the harmful effects of the infringe- public interest, it should be considered whether: ment on competition and prices in the market, as well as by the extent • the conduct was: of direct economic loss suffered by other parties. • systematic; When the basic amount of the fine has been determined, the • intended to produce significant personal gain; or SCA may take into account aggravating and mitigating circumstances • caused or was intended to cause significant harm; that result in an increase or decrease of the base amount. Regarding • the person in question has previously been convicted of criminal aggravating circumstances, particular attention is paid to any steps acts in respect of business activities; and taken to coerce other undertakings to participate in the infringement, • the conduct was intended to prevent, restrict or distort competition. or if the undertaking held a ringleader role in the cartel or has in some way punished other companies in order to keep them adhering to the A trading prohibition will not be considered necessary in the public behaviour that constitutes the infringement. Regarding mitigating interest, if the subject provided significant assistance in the investi- circumstances, particular attention is paid to evidence that the under- gation of the infringement to the SCA, the European Commission or a taking’s involvement in the infringement is substantially limited. The competition authority in another member state. This particularly applies lack of intent of the undertaking to be involved in the infringement is in cases where a company takes part in a leniency programme. also taken into account. However, participating in an infringement The SCA may apply for an injunction against trading either in because of pressure from other companies, proving that no profits were conjunction with an action for administrative fines or in separate made by the undertaking, or that it suffered damage from the cartel proceedings before the Patent and Market Court. operations are not considered to be mitigating circumstances. The SCA may also take into account circumstances that are not Debarment connected to the specific infringement in question. These circumstances 24 Is debarment from government procurement procedures include previous infringements of the prohibitions in the Act or the TFEU, automatic, available as a discretionary sanction, or not evidence that shows that the infringement was terminated as soon as available in response to cartel infringements? the SCA intervened and the financial situation of the undertaking. The sentencing principles mentioned are binding on the adjudi- Debarment from government procurement procedures may be available cator. The Fining Guidelines, however, are not binding on the adjudicator, as a discretionary choice for the government authority that conducts a but they are binding on the SCA when determining what fines to ask procurement. It is not a sanction that can be imposed during the compe- for and when imposing binding fines not disputed by the undertakings tition infringement procedure, but is instead decided in the procurement concerned. procedure. Whether a tenderer can be debarred is assessed on a case- by-case basis. There is no specific duration for a debarment. Compliance programmes For debarment to be initiated it must be proportionate to the 22 Are sanctions reduced if the organisation had a compliance gravity of the professional misconduct and it must be sufficiently likely programme in place at the time of the infringement? that the relevant undertaking is guilty of grave professional misconduct, proven by any means that the procuring authorities can demonstrate. There are no provisions in the Act or related guidance, and there are no An infringement of the prohibition against anticompetitive agreements, references in case law, to compliance programmes being accepted as a which has been the subject of a final judgment, or a decision by the SCA mitigating factor. This may be something that is developed more in the where the undertaking in question does not dispute the fine, may consti- future but there is no public precedent as yet. tute professional misconduct of that kind. If those conditions are met, the authority may debar an undertaking Director disqualification from participation in a procurement process. The possibility of debar- 23 Are individuals involved in cartel activity subject to orders ment shall, however, be construed restrictively considering the grave prohibiting them from serving as corporate directors or consequences for excluded undertakings. officers? A decision to debar a tenderer can be made at any time during a procurement procedure. Although, despite there being no legislative Trading prohibitions can be imposed on individuals who are involved in provision stating a formal time limit for such a decision to be made in, particularly serious infringements of the ban on anticompetitive agree- as a general rule it should be made as early as possible. ments (eg, cartels) provided such an injunction is necessitated by the A debarment decision can be appealed to the Administrative Court public interest. of the circuit where the procuring authority is located. A trading prohibition bans the subject from initiating or partici- pating in economic activity (eg, owning or setting up an undertaking) or occupying a managing position in an undertaking for a period of between three to 10 years. Injunctions can be imposed on all persons

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Parallel proceedings respect to one of the claims to which the action relates. The organi- 25 Where possible sanctions for cartel activity include criminal sational action means, as with the public group action, that someone and civil or administrative penalties, can they be pursued is given standing to sue without the dispute in any way affecting the in respect of the same conduct? If not, when and how is the plaintiff’s own legal interests. This is contrary to the normal principles choice of which sanction to pursue made? regarding standing under Swedish law. The procedural rules are, except for a few exceptions, the same as in civil proceedings. Criminal penalties do not exist under Swedish competition law. In addition to administrative sanctions, the Act contains an explicit right COOPERATING PARTIES to claim damages for parties who have suffered injury as a result of infringements of the prohibitions against anticompetitive agreements Immunity or abuse of a dominant position. There is also a possibility for the SCA to 28 Is there an immunity programme? If so, what are the basic apply for an injunction against trading. elements of the programme? What is the importance of being ‘first in’ to cooperate? PRIVATE RIGHTS OF ACTION Chapter 3, Sections 12 to 15 of the Swedish Competition Act (2008:579) Private damage claims (the Act) provide for immunity or reduction from fines. These rules were 26 Are private damage claims available for direct and indirect amended in 2014 to introduce more predictability and to mirror the purchasers? Do purchasers that acquired the affected European Union’s leniency system (eg, through the addition of a marker product from non-cartel members also have the ability to system). The Swedish Competition Authority (SCA) has also published bring claims based on alleged parallel increases in the guidelines on its leniency policy. Contrary to the EU leniency system, prices they paid (‘umbrella purchaser claims’)? What level of the Swedish leniency regime is available for all infringements captured damages and cost awards can be recovered? by Chapter 2, Section 1 of the Act (ie, not only horizontal cooperation, such as cartels). An undertaking that has intentionally or negligently violated Chapter 2, Full leniency (ie, immunity from fines) may be granted to the first section 1 or Chapter 2, section 7 of the Swedish Competition Act (2008:579) undertaking to notify the SCA if the information contained in the applica- (the Act), or articles 101 or 102 of the Treaty on the Functioning of the tion is sufficiently material to enable action against the infringement if European Union (TFEU), is liable to compensate other parties for the the undertaking: damage the violation has caused them, including parties to the agree- • provides the SCA with all the information about the infringement ment violating the Act. There is a presumption of damage when a cartel that it has at its disposal; infringement has been established. Both contractual liability and indem- • cooperates fully with the SCA throughout the investigation of the nity liability are included, and the liability covers pure economic loss infringement; without any link to personal or property damage. This means that the • does not destroy, falsify or conceal relevant information or evidence proven injury can be recovered. Hence, Swedish rules on damages are of relating to the alleged anticompetitive agreement; and a ‘compensatory nature’. Passing-on defences and similar are permitted • has ended its involvement in the infringement or ends it as soon as under Swedish law. The Act itself gives little guidance on the size of possible after informing the SCA. damages that can be awarded, and there are very few cases in Sweden. The scope of persons entitled to damages is not defined in the If the SCA has already received sufficient information to commence an Act, whereas purchasers that acquired the product from non-cartel investigation into an infringement but no undertaking has applied for members also have the ability to bring claims based on alleged parallel leniency in accordance with the above, immunity may still be granted increases in the prices they paid. However, the scope of persons entitled if an undertaking, in addition to the criteria listed above, is the first to to damages is limited by considering the purpose and object of the Act provide information that makes it possible to establish that an infringe- and the subjects protected by the Act, as well as general principles on ment has occurred or has otherwise facilitated the investigation of an damages, including the principle of proximate cause. infringement to a very significant extent. Regarding the judicial procedure, the Patent and Market Court The latter criterion will, according to the SCA’s guidelines, be inter- holds the exclusive competence to hear antitrust damages actions. preted strictly and the availability of immunity is intended to be very The procedural rules for such actions are the same as in other civil limited under this rule. proceedings, with some exceptions. A case must be brought before the In the event that another company has already obtained a marker, court within five years from when the infringing behaviour ended and immunity may not be granted before the period of extension has ended, the injured party gaining knowledge, or when they could have been nor may immunity be granted if the SCA has stated in a decision that the expected to have gained knowledge, of the infringement, the injuries conditions for immunity are already fulfilled. it caused and the identities of the concerned companies. The injured An undertaking that has forced others to participate may not party is expected to have gained knowledge if the Swedish Competition obtain immunity. Authority (SCA) has established an infringement. Subsequent cooperating parties Class actions 29 Is there a formal programme providing partial leniency for 27 Are class actions possible? If so, what is the process for such parties that cooperate after an immunity application has been cases? If not, what is the scope for representative or group made? If so, what are the basic elements of the programme? actions and what is the process for such cases? If not, to what extent can subsequent cooperating parties expect to receive favourable treatment? It is possible to initiate individual group actions (class actions), public group actions and organisational group actions. A person who is a The Swedish leniency programme also covers partial leniency for parties member of a group may bring an individual group action. This means that cooperate after an immunity application has been made. Although that the plaintiff must have standing to be a party to litigation with only the first undertaking to cooperate with the SCA can qualify for www.lexology.com/gtdt 241 © Law Business Research 2020 Sweden Mannheimer Swartling

immunity, the undertaking that comes second may get a reduced fine if • end its involvement in the infringement or end it as soon as it fulfils the same kinds of conditions on cooperation applicable to immu- possible after informing the SCA. nity applicants. The SCA decides in its application to the court whether the information an undertaking has provided has added considerable All the information that the immunity applicant has at its disposal relating value, and the related level of reduction to be awarded. to the alleged anticompetitive agreement at the time of the application has to be provided for an application to be considered as filed. In addi- Going in second tion, the information must be relevant to prove the infringement and 30 How is the second cooperating party treated? Is there an include identities of the other participants, the affected market, and the ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, type and duration of the infringement. how does it operate? Additional information to which the undertaking may subsequently gain access during the ongoing investigation must also be given to the The reduction of the fine for the second cooperating party is between SCA. In other words, the undertaking must continuously, and volun- 30 and 50 per cent. The third cooperating party receives a reduction of tarily, submit all relevant information regarding the infringement and 20 to 30 per cent. For other undertakings, the maximum reduction is copies of all relevant material to which the undertaking has access (eg, 20 per cent. notes or minutes from meetings). Informing other participants about the In determining the level of reduction within these categories, the application or evidence supplied and other measures that hinder the SCA will take into account at what time the information was provided, SCA’s investigation will remove the possibility of immunity. to what extent the information added value and to what extent and with If the SCA has already received sufficient information to commence what continuity the undertaking has cooperated with the SCA after the an investigation into an infringement but no undertaking has applied for information was provided. leniency in accordance with the above, immunity may still be granted There are no formalised amnesty plus or penalty plus systems if an undertaking, in addition to the criteria listed above, is the first to available under the Swedish leniency regime. This means that there is provide information that makes it possible to establish that an infringe- no explicit scope to receive lenient treatment in one case as a result of ment has occurred; or facilitates the investigation of an infringement providing information about an infringement in a separate case. in some other way to a very significant extent. According to the SCA’s guidelines, the latter criterion is interpreted strictly, as the availability of Approaching the authorities immunity under this rule is intended to be very limited. 31 Are there deadlines for initiating or completing an application Second or subsequent cooperating parties must add sufficient for immunity or partial leniency? Are markers available and value to qualify for a fine reduction and fulfil somewhat similar condi- what are the time limits and conditions applicable to them? tions to an immunity applicant in terms of ongoing cooperation.

Although there are no express ‘deadlines’, if an undertaking wishes to Confidentiality benefit from full immunity under the Swedish leniency programme, 33 What confidentiality protection is afforded to the immunity it should file an application as soon as it has gathered the necessary applicant? Is the same level of confidentiality protection information. Otherwise, it runs the risk that one of the other partici- applicable to subsequent cooperating parties? What pants to an anticompetitive arrangement may ‘blow the whistle’ first, information will become public during the proceedings and considerably limiting the undertaking’s chance of qualifying for immu- when? nity. However, even if the undertaking is not first in, there is a chance of qualifying for a reduction of the fine. As a general rule in Sweden, everyone should have access to all An undertaking that submits an incomplete application may obtain public documents according to the principle of public access to offi- a marker, provided that the application contains information on the cial records. However, there are exceptions to this principle. The three market concerned by the infringement, the other companies involved most relevant categories of information for competition law are infor- in the infringement, and the object of the infringement. The time limit mation relating to the investigation, the identity of the informant, and to perfect this market is set at the discretion of the SCA, but is usually trade secrets. no longer than two weeks unless the undertaking can provide sufficient Information related to an investigation by the SCA (not only plan- reasons for a longer time limit. ning and preparations) will be held confidential if, considering the object of the investigation, it is of exceptional importance that the informa- Cooperation tion is not disclosed. The information is primarily confidential to the 32 What is the nature, level and timing of cooperation that companies subject to the investigation, but it may also be confidential is required or expected from an immunity applicant? Is to third parties. The confidentiality lasts only as long as the SCA carries there any difference in the requirements or expectations on its investigation. At the latest, when the SCA has finalised its draft for subsequent cooperating parties that are seeking partial statement of claim, the parties have a right to gain full knowledge of leniency? its content. Information provided by immunity applicants or other cooperating Full leniency (ie, immunity from fines) may be granted to the first parties may be treated as confidential. The provisions guarantee the undertaking to notify the SCA of a cartel infringement and provides confidentiality of reports and other information provided to the SCA by information in its application that is sufficiently material to enable action an informant if it can be assumed that the informant will suffer substan- against the infringement. However, the undertaking must: tial damage or another substantial detriment if the information is • provide the SCA with all the information about the infringement revealed. Confidentiality concerns both legal and natural persons. Both that it has at its disposal; information that was given on an informant’s own initiative and informa- • cooperate fully with the SCA throughout the investigation of the tion provided on request from the SCA may be confidential under this infringement; rule. However, since the objective of the rule is to protect the informant, • not destroy, falsify or conceal relevant information or evidence only the information that could somehow disclose the identity of the relating to the alleged anticompetitive agreement; and informant is treated as confidential here.

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Information about commercial and operating conditions, inven- Dealing with the enforcement agency tions or research results may also be treated as confidential if it can be 36 What are the practical steps for an immunity applicant assumed that the undertaking would suffer damage if the information or subsequent cooperating party in dealing with the were to be revealed. This is typically the case for trade secrets provided enforcement agency? to the SCA by certain third parties, such as competitors or customers. Information in public records related to the SCA’s investigations If an undertaking wishes to take advantage of the leniency programme, and other enforcement measures remains confidential for a maximum it should contact the SCA for an assessment of its chances of qualifying of 20 years, or otherwise as long as it can be assumed that the party for immunity from, or a reduction of, fines. The contact must be made by concerned will suffer substantial damage or another substantial detri- a person empowered to represent the undertaking (but can initially be ment if the information is revealed. It follows from the rules that the anonymous). The undertaking cannot qualify for immunity until a formal level of confidentiality does not depend on the level of cooperation by application has been filed with the SCA. This application can be made in the parties. writing or orally. There is a strong protection for party insight. This means that even though the information may be assessed as confidential, it can only be DEFENDING A CASE withheld from the parties if there is a public or individual interest of exceptional importance. In this case, the parties must be given enough Disclosure information to be able to safeguard their rights of defence. At the stage 37 What information or evidence is disclosed to a defendant by when the SCA has submitted an application to the Patent and Market the enforcement authorities? Court asking the court to impose fines on a company, all documents submitted to the court (ie, evidence invoked against a party) must be Access to the case file in its entirety is normally granted at the stage disclosed to the party in question. when the Swedish Competition Authority (SCA) considers that it has sufficient evidence to prove the existence of a suspected cartel and Settlements thereby issues a draft statement of claim (similar to a statement of 34 Does the investigating or prosecuting authority have the objections). Before the SCA files an application to issue fines with the ability to enter into a plea bargain, settlement, deferred court, the parties concerned will be granted an opportunity to review prosecution agreement (or non-prosecution agreement) or and comment on the draft application and the evidence disclosed. other binding resolution with a party to resolve liability and However, there are some exceptions allowing the SCA to keep penalty for alleged cartel activity? What, if any, judicial or certain information confidential from the other concerned parties, other oversight applies to such settlements? even after the draft statement of claim has been issued, or to release documents to a limited number of individuals under the proviso that The SCA cannot agree a plea bargain to resolve an investigation but the documents may only be used for exercising defence rights, etc. there is a type of a settlement process. The Act gives the SCA the right to Similarly, certain information may be disclosed only at the SCA’s own issue a ‘fine order’ – a form of binding settlement used where the facts premises (typically quantitative data). Also in such cases, the SCA issues are uncontested. The SCA controls this process, and only selects cases a decision to limit the group of people that may have access to the infor- that it considers to be clear-cut infringements as being appropriate mation (eg, legal and economic advisers). for settlements. If the company under investigation accepts the SCA’s When the SCA has submitted an application to the Patent and settlement terms, the fine order is binding and a simplified decision on Market Court to ask the court to impose fines on a company, the rules liability is issued. Such settlements can be appealed to the Patent and on evidence in the Swedish Code of Judicial Procedure (1942:740) will Market Court within a year of written confirmation. prevail over the rules set out in the Public Access to Information and The settlement allows the SCA to impose a fine directly, without the Secrecy Act. In practice, this means that all documents submitted to the usual requirement of proving its case in court. However, unlike the fixed Court (ie, evidence invoked against a party) must be disclosed to the 10 per cent reduction on offer at the EU level, there is no discount for party in question. agreeing to a settlement in Sweden. Advantages come in the form of a simplified and expedited process. Representing employees 38 May counsel represent employees under investigation in Corporate defendant and employees addition to the corporation that employs them? When should 35 When immunity or partial leniency is granted to a corporate a present or past employee be advised to obtain independent defendant, how will its current and former employees be legal advice or representation? treated? There is nothing definitively preventing an employee or other represent- The current Act introduced the possibility of imposing an injunction ative of a company under investigation from being represented by the against trading for persons who have participated in serious breaches same counsel during SCA interviews. Whether it is appropriate for an of Chapter 2, section 1 of the Act or article 101 TFEU. However, in employee to seek separate counsel is assessed on a case-by-case basis cases where the person against whom the injunction could be imposed (eg, taking account of whether and when the interests of the employee has participated in the provision of significant assistance in the SCA’s and employer are aligned). investigation of the infringement, an injunction shall not be considered necessitated by the public interest. Multiple corporate defendants 39 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated?

It is possible for a counsel to represent multiple corporate defendants. However, for members of the Swedish Bar and their employees, the guidelines on ethics of the Swedish Bar Association contain stringent www.lexology.com/gtdt 243 © Law Business Research 2020 Sweden Mannheimer Swartling

provisions relating to the representation of clients with conflicting inter- more than 100 over the previous year. However, this statistic does not ests. Subject to these limitations, defending multiple corporate clients cover leniency applications, in relation to which the SCA reported having is possible. 10 open matters as at Q1 2020. The SCA can resolve a case in many ways, from simple case closure Payment of penalties and legal costs and case closure as a result of changed behaviour, to binding commit- 40 May a corporation pay the legal penalties imposed on its ments and fines litigated in court. In 2019, five complaints were prioritised employees and their legal costs? for in-depth investigation, one of which related to horizontal cooperation, and four investigations were closed in that same period. Some of this Legal penalties are imposed on the undertakings involved in the cartel activity is summarised below, but it is worth noting that recent cases do and not on the employees of those undertakings. Hence, individual not tend to fall into classic cartel territory but rather more broadly within employees cannot be ordered to pay fines or other monetary sanctions. that of anticompetitive agreements (including vertical matters). However, undertakings may pay their employee’s legal costs. One case drawing to a close in the past year is the investigation into whether an information exchange on production volumes between Taxes companies active in the asphalt industry had infringed competition law. 41 Are fines or other penalties tax-deductible? Are private The parties voluntarily submitted commitments with the effect that damages payments tax-deductible? such information would not be shared between competitors. The SCA accepted the commitments and the case was closed in November 2019. Fines, penalties and similar public charges (such as fines imposed by The SCA also resolved a case focusing on the wood cutting tools the SCA or the European Commission) are non-deductible for Swedish sector, in which agreements between a manufacturer and three retailers tax purposes. Private damages awards are tax-deductible since they do were investigated due to market-sharing concerns. The case was closed qualify as an operating expense. by the SCA in 2019 as the parties had ceased to apply the contractual provision which had been of concern. International double jeopardy The SCA also closed an investigation into alleged anticompeti- 42 Do the sanctions imposed on corporations or individuals tive cooperation between companies active in the musical instruments take into account any penalties imposed in other sector. It was suspected that retailers, manufacturers and distributors jurisdictions? In private damage claims, is overlapping had coordinated retail prices. The investigation did not support the liability for damages in other jurisdictions taken into suspicions as regards to the Swedish market, however, and the case account? was closed. Related cases have been ongoing throughout Europe. In December 2019, the SCA also adopted an interim decision prohib- It follows from the principle of ne bis in idem that companies and indi- iting a company selling training services to consumers via a mobile app viduals already sanctioned in a proceeding outside Sweden cannot be from applying exclusive agreements with its fitness studio partners. The fined in a Swedish national court for the same anticompetitive conduct. decision was unsuccessfully appealed by the party concerned and the However, with respect to non-EU member states, there are no safe- case is ongoing. This is the first time since 2012 that the SCA has applied guards protecting an undertaking from fines or penalties in Sweden if interim measures. the undertaking has been penalised in a state outside the EU. In July 2020, the SCA settled a case between two companies active Swedish rules on damages are of a compensatory nature. This in the interior design sector. The parties were found to have been coor- means that overlapping liability for damages can be taken into account dinating their sales prices. Following the investigation, they agreed to when assessing damages. However, there is no clear legal ground for pay fines of 75,000 kronor and 500,000 kronor respectively. taking into account penalties imposed in other jurisdictions. The SCA An in-depth investigation into anticompetitive cooperation between does not mention it as a mitigating factor in its guidelines on how to companies active in the professional hair care sector was also closed by determine fines, nor is it mentioned as a mitigating factor in the Act. the SCA in September 2020. The case centred on a press release issued by seven companies through a trade association and related contacts. Getting the fine down The press release had given rise to a suspicion that the companies had 43 What is the optimal way in which to get the fine down? coordinated their future competitive behaviour in collectively rejecting the alternative business concept of another competitor. After further Companies can avail themselves of the SCA’s leniency framework to investigation, no infringement was found. reduce an anticipated fine. Full leniency (ie, immunity from fines) may Finally, in terms of public cases, there are ongoing investigations in be granted to the first undertaking to notify the SCA if the information the airline, brewery, insurance, lighting, transport and dairy sectors, not contained in the application meets certain strict criteria. Reductions are all of which relate to horizontal cooperation. also available for second and subsequently cooperating parties. The existence or introduction of a compliance programme has not Regime reviews and modifications yet been shown to affect the level of the fine. 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency UPDATE AND TRENDS programmes or other elements of the regime?

Recent cases In February 2020, the Swedish government published a proposal for the 44 What were the key cases, judgments and other developments legislative amendments required to implement Directive (EU) 2019/1 of the past year? of the European Parliament and of the Council of 11 December 2018 to empower the competition authorities of the Member States to be more In its annual report on enforcement, the Swedish Competition Authority effective enforcers and to ensure the proper functioning of the internal (SCA) noted that many of its investigations, and subsequent litigations, market (the ECN+ Directive). are triggered by tip-offs or complaints. In 2019, the SCA received 682 tips, The proposed changes include provisions to grant the SCA deci- complaints and inquiries related to competition matters, an increase of sion-making powers for issuing competition fines, as well as other

244 Cartel Regulation 2021 © Law Business Research 2020 Mannheimer Swartling Sweden procedural fines levied for non-cooperation in the context of an investi- gation. The proposal is being consulted upon during 2020. Significantly, an opinion to the Swedish government from the Swedish Council on Legislation in October advised against extending the SCA’s decision- making powers. The opinion is not binding but carries weight. The outcome of this remains to be seen.

Coronavirus 46 What emergency legislation, relief programmes, enforcement Johan Carle [email protected] policies and other initiatives related to competitor conduct have been implemented by the government or enforcement Fredrik Sjövall authorities to address the pandemic? What best practices are [email protected] advisable for clients? Stefan Perván Lindeborg [email protected] The European Competition Network, of which the SCA is a member, released a joint statement in March 2020 on the application of compe- Norrlandsgatan 21 tition law during the coronavirus crisis. The SCA then issued its own PO Box 1711 press release on that statement, as well as a subsequent press release 111 87 Stockholm in support of the Temporary Framework launched by the European Sweden Commission in April 2020. Tel: +46 8 595 060 00 The SCA has underscored its availability to provide informal advice www.mannheimerswartling.se on cooperation initiatives considered necessary as a result of the pandemic, but also emphasised that unjustified anticompetitive behav- iour will not be tolerated. No specific temporary regime, comfort letter or exceptions to the Swedish Competition Act (2008:579) have so far been issued or estab- lished by the SCA in this context.

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Mario Strebel and Fabian Koch CORE Attorneys Ltd

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? There have recently been several changes to the applicable regime. On The legislation governing cartels in Switzerland is the Federal Act 9 April 2018, the Commission amended the explanatory notes on the on Cartels and Other Restraints of Competition of 6 October 1995, as communication on vertical agreements in order to adapt to the land- amended (the Cartel Act). The regulatory framework is complemented mark ruling of the European Court of Justice on third-party platform by several federal ordinances, general notices, guidelines and commu- restrictions in the matter of Coty International v Parfümerie Akzente. nications of the Swiss Competition Commission. Furthermore, on 28 February 2018, the Secretariat published, for the first time, guidelines on the main features of amicable settlements Relevant institutions and an overview of the respective procedure based on article 29 of 2 Which authority investigates cartel matters? Is there the Cartel Act (the Amicable Settlement Guidelines). The Amicable a separate prosecution authority? Are cartel matters Settlement Guidelines also contain a template of the framework adjudicated or determined by the enforcement agency, a conditions for amicable settlement negotiations and a template of an separate tribunal or the courts? amicable settlement agreement to be concluded with the Secretariat. In August 2020, the Secretariat informed that the Commission allows The federal authorities investigating cartel matters are the Commission the setting of paperless markers for leniency applications via online and its Secretariat, which are based in Berne. They are independent forms. Other than these electronic markers, leniency markers may of the federal government. The Commission consists of 11 to 15 only be submitted in writing, by email or in person. Furthermore, the members (currently 12) and is headed by its president and the two Commission has decided to extend the applicability of the communica- vice-presidents. The majority of the Commission’s members must be tion regarding the competition law treatment of vertical agreements independent experts (having no interest in or special relationship with in the motor vehicle sector for one year, from the end of 2022 to the any economic group whatsoever). While investigations are conducted end of 2023. by the Secretariat, which also prepares the Commission’s decisions, the There are also some proposals for change to the regime. However, deciding body in cartel matters is the Commission. it is not clear whether, and if so in what form, they will be implemented. Based on the Commission’s internal rules of procedure of 15 June 2015 that entered into force on 1 November 2015, two separate cham- Substantive law bers of the Commission with independent decision-making power were 4 What is the substantive law on cartels in the jurisdiction? introduced; first, a chamber for partial decisions and second, a chamber for merger control clearance. The chamber for partial decisions has The Cartel Act prohibits unlawful restraints of competition such as been introduced in particular for the closing of hybrid cartel cases (ie, anti-competitive agreements between two or more independent under- proceedings in which only some of the parties agree to close the investi- takings operating at the same or different market levels that have a gation with an amicable settlement). All decisions that are not allocated restraint of competition as their object or effect (article 4(1) of the Cartel to one of these two chambers shall be made by the Commission as Act). Importantly, the notion of the anti-competitive agreement does a whole. The Secretariat is organised into four operational divisions not only cover binding agreements in a strict legal sense but also non- (services) responsible for the construction sector, the service sector, binding agreements, ‘gentleman’s agreements’ or concerted practices the infrastructure sector and product markets. Besides, the resources such as the exchange of information in order to knowingly substitute and logistics division is dealing with internal administrative matters practical cooperation for the risks of competition. To be unlawful, an only. Each division is headed by a vice-director. In addition to these agreement must either eliminate effective competition or significantly divisions, there exist a number of cross-functional competence centres restrict competition without being justified on economic efficiency that support the work of the Secretariat. The Secretariat has around grounds (article 5(1) of the Cartel Act). 75 employees (around 65 full-time equivalents), including a significant By law (article 5(3) and (4) of the Cartel Act), the following agree- number of economists. ments are presumed to eliminate effective competition and are thus considered as hardcore restraints: • horizontal agreements that directly or indirectly fix prices, restrict quantities of goods or services to be produced, purchased or supplied, or allocate markets geographically or according to trading partners; and

246 Cartel Regulation 2021 © Law Business Research 2020 CORE Attorneys Ltd Switzerland

• vertical agreements that set minimum or fixed prices (resale price APPLICATION OF THE LAW AND JURISDICTIONAL REACH maintenance) or allocate territories to the extent that (passive) sales by other distributors into those territories are not permitted Application of the law (absolute territorial protection). 6 Does the law apply to individuals, corporations and other entities? Such a presumption may be rebutted if it can be shown that, as a matter of fact, effective competition is not eliminated by these agree- According to article 2(1)-(1bis) of the Cartel Act, any undertaking, public ments. If competition is not eliminated, it has to be assessed whether or private, that is engaged in an economic process, ie, that offers or the agreement significantly restricts competition. In the landmark cases acquires goods or services, is an undertaking within the meaning of the involving GABA International SA, the manufacturer of Elmex toothpaste, Cartel Act and therefore subject thereto. As to the applicability of the and Gebro Pharma GmbH, its Austrian licensee, in the matter of the law, a functional approach is taken and neither the organisation nor the Elmex toothpaste cases of 28 June 2016 (2C_180/2014) and 4 April 2017 legal form of an undertaking is relevant. (2C_172/2014) respectively, the Swiss Federal Supreme Court substan- Undertakings can be individuals – that is, natural persons – or tially tightened its practice with regard to hardcore restraints. The Swiss legal entities such as corporations or associations. Individuals acting Federal Supreme Court decided those vertical and horizontal hardcore as consumers are not caught by the Cartel Act. Individuals acting as restraints listed above, in principle, significantly restrict competition. officers or employees of an undertaking are not caught by the Cartel Act The significance of the competition restraints is assumed for hardcore for administrative sanctions, only the undertaking is. However, certain restraints owing to their quality without the need to examine quanti- penal sanctions may apply. Further, undertakings that perform tasks tative effects such as market shares. According to the Swiss Federal in the public interest and that are vested by law with special rights Supreme Court, already a small degree of a restriction of competition (such as , for instance,Swiss Post for specific postal services) are also suffices to constitute significance. Horizontal and vertical hardcore (partly) exempted. restraints must therefore be justified on the grounds of economic effi- ciency to be permissible. Extraterritoriality Economic efficiencies justifying otherwise unlawful anti-competi- 7 Does the regime apply to conduct that takes place outside the tive agreements include: jurisdiction (including indirect sales into the jurisdiction)? If • a reduction of production or distribution costs; so, on what jurisdictional basis? • the improvement of products or production processes; • the promotion of research into or the dissemination of technical or Article 2(2) of the Cartel Act codifies the international law principle of professional know-how; and the effects doctrine. According to the landmark cases involving GABA • a more rational exploitation of resources. International SA, the manufacturer of Elmex toothpaste, and Gebro Pharma GmbH, its Austrian licensee, of 28 June 2016 (2C_180/2014) In addition to these benefits, to successfully justify anti-competitive and 4 April 2017 (2C_172/2014), respectively, the Federal Supreme behaviour by claiming it creates economic efficiencies, the legal anti- Court ruled that the Cartel Act applies to all agreements and concerted competitive agreements must not, under any circumstances, enable the practices that may have an effect within Switzerland. Therefore, parties involved to eliminate effective competition. agreements concluded abroad or conduct that takes place outside The strict approach adopted with the Elmex toothpaste cases has Switzerland, but that might have effects in Switzerland may fall under been confirmed by the Swiss Federal Supreme Court in its Altimum Swiss jurisdiction. decision (regarding mountaineering equipment) of 18 May 2018 More recently, the Commission has imposed severe sanctions on (2C_101/2016). In this decision, the Swiss Federal Supreme Court Nikon and BMW because their European dealer agreements contained also made clear that the barriers to justify otherwise unlawful anti- provisions prohibiting exports to countries outside the European competitive agreements on the basis of economic efficiency are high, in Economic Area. As Switzerland is not part of the EEA (and was, as a particular for hardcore restraints. result, affected by those provisions), the Commission was of the opinion that these restrictions led to a foreclosure of the Swiss market. This, Joint ventures and strategic alliances in general, is in line with the Commission’s past practice to interpret 5 To what extent are joint ventures and strategic alliances effects in Switzerland broadly in a sense that the mere possibility of potentially subject to the cartel laws? effects suffices. Both the BMW and Nikon decisions were upheld by the Swiss Federal Supreme Court and the Swiss Federal Administrative As any formal or informal agreement that restricts competition by object Tribunal, respectively. or effect, joint ventures and strategic alliances, such as marketing alli- ances and purchasing pools, are, in principle, subject to Swiss cartel Export cartels regulation. Exceptions may be possible in a merger control context. 8 Is there an exemption or defence for conduct that only affects In this context, anti-competitive and therefore otherwise inadmissible customers or other parties outside the jurisdiction? agreements that are directly related and necessary to concentrations (ancillary restraints) may be privileged (concentration privilege). Based Article 2(2) of the Cartel Act codifies the international law principle of on a formal request for legalisation, ancillary restraints can become the effects doctrine. In light of this doctrine, conduct that only affects officially legalised with the clearance of the concentration by the customers or other parties outside Switzerland should, in general, not Commission in the respective merger control proceeding, which is of fall under Swiss jurisdiction. However, in cases where there might be great benefit to the parties involved due to the legal certainty gained. repercussions on the Swiss market as, for instance, in an (re-)import Without such a formal request and legalisation, the parties themselves scenario, the Swiss Cartel Act may nevertheless apply. Importantly, the have to assess whether the ancillary restraints are permissible. This Swiss Federal Supreme court has widened the effects doctrine with is also the case if a concentration is not notifiable since the turnover its landmark decisions dated 28 June 2016 (2C_180/2014) and 4 April thresholds are not satisfied. 2017 (2C_172/2014), respectively, with regard to Gaba and Gebro in the Elmex Toothpaste matter. Not only actual effects, but also potential www.lexology.com/gtdt 247 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

effects on the Swiss market are deemed sufficient to establish juris- schemes (cost-calculation aids). The purpose of the latter, which is the diction, giving the authorities considerable leeway when determining more important of the two in practice, is to distinguish lawful use of whether a specific conduct falls under Swiss jurisdiction. cost-calculation aids from illegal horizontal price fixing. To qualify as a lawful cost-calculation aid, the following requirements must be met: Industry-specific provisions • the aid may only set out the basis for the cost calculation, but may 9 Are there any industry-specific infringements? Are there any not stipulate any flat costs; industry-specific defences or exemptions? • know-how may be exchanged to allow the cost calculation, but information on how prices are set must not be disclosed; The Cartel Act does not provide for any industry-specific offences or • the parties must be free to set prices and conditions and to deter- defences or any anti-trust exemptions for government-sanctioned mine discounts in whatever form; and activities. However, pursuant to article 3(1) of the Cartel Act, statutory • price elements, discounts or consumer prices shall not be provisions that do not allow for competition in a certain market for certain ‘proposed’. goods or services take precedence over the Cartel Act. Such statutory provisions include rules that establish a state market or price regula- Communications of the Commission are not binding upon Swiss courts. tion, or that provide individual undertakings with special rights in order Finally, upon specific request by the parties, subject to a decision to fulfil public duties. However, according to the Swiss Federal Supreme of the Commission or the appellate courts, the Swiss Federal Council Court, such statutory exemptions must be interpreted narrowly. may authorise otherwise unlawful anti-competitive conduct in excep- The Cartel Act also empowers the Swiss Federal Council and the tional cases if such conduct is deemed necessary for compelling public Commission to issue ordinances or general notices, respectively, on interest reasons (article 8 of the Cartel Act). To date, such authorisation specific anti-competitive agreements that are, in principle, justified on has never been granted. economic efficiency grounds. Such anti-competitive agreements include: • cooperation agreements relating to research and development; Government-approved conduct • specialisation and rationalisation agreements (including agree- 10 Is there a defence or exemption for state actions, ments concerning the use of schemes for calculating costs); government-approved activity or regulated conduct? • exclusive distribution and purchase agreements for certain goods or services; Article 2(1)–(1bis) of the Cartel Act makes clear that any undertaking, • exclusive licensing agreements for intellectual property rights; and public or private, engaged in an economic process that offers or • agreements with the purpose of improving the competitiveness of acquires goods or services is an ‘undertaking’ within the meaning of small and medium-sized enterprises provided that they have only the Cartel Act and that neither the organisation nor the legal form of an a limited effect on the market. undertaking is relevant. However, pursuant to article 3(1) of the Cartel Act, statutory provi- On this basis, several general notices and communications have been sions that do not allow for competition in a certain market for certain published by the Commission. goods or services take precedence over the Cartel Act. Such statutory On 22 May 2017, the Commission adapted its Vertical Agreements provisions include, in particular, rules that establish a state market or Communication, in response to the Swiss Federal Supreme Court’s price regulation or that provide individual undertakings with special landmark decisions in the Elmex toothpaste matter of 28 June 2016 rights in order to fulfil public duties. However, according to the Swiss (2C_180/2014) and 4 April 2017 (2C_172/2014), and has addition- Federal Supreme Court, such statutory exemptions must be inter- ally issued, for the first time, explanatory notes as an interpreting aid preted narrowly. on 12 June 2017, as amended on 9 April 2018. The latter particularly also contain explanations with regard to online sales restrictions. INVESTIGATIONS This communication incorporates the principles developed by the Commission and the appellate courts based on article 5(4) of the Cartel Steps in an investigation Act and, in principle, seeks harmonisation with the Block Exemption 11 What are the typical steps in an investigation? Regulation 330/2010 and the related Guidelines on Vertical Restraints applicable in the European Union while taking the economic and legal Cartel proceedings under the Federal Act on Cartels and Other specificities of Switzerland into account. Restraints of Competition of 6 October 1995, as amended (the Cartel Act) On 19 December 2005, the Commission adopted the Communication are in principle two-staged, consisting of a first stage preliminary inves- on Agreements of Minor Importance (de minimis), specifically targeting tigation that may be followed by a second stage in-depth investigation. agreements between small and medium-sized enterprises to improve Nevertheless, Swiss Competition Commission may open an in-depth their competitiveness, provided that the agreements do not contain investigation even without going through a preliminary investigation. hardcore restraints and only have a limited effect on the market. The Commission’s Secretariat can initiate preliminary investigations On 1 November 2002, the Commission enacted the Motor Vehicle on its own initiative, at the request of involved undertakings (eg, compet- Communication and a brief explanatory note regarding its application. itors) or based on a complaint from third parties (eg, consumers). It is The aims of the Motor Vehicle Communication were essentially to allow at the discretion of the Secretariat to open a preliminary investigation. the parallel importation of motor vehicles from the European Union and If the Secretariat concludes that there are indications of the elimi- European Economic Area to Switzerland, to suppress the link between nation or a significant restriction of effective competition, it opens an retail and after-sales servicing, to facilitate the sale and the parallel investigation together with one presidium member of the Commission. importation of spare parts and to give distributors more freedom The Secretariat must open an investigation if requested to do so by the in relation to multi-branding. On 1 January 2016, the Commission’s Commission or by the Swiss Federal Department of Economic Affairs, revised Motor Vehicle Communication entered into force and replaced and Research. During preliminary investigations, the parties the communication of 2002. concerned have no procedural rights (that is to say, no right to access The Commission has also published a general notice on homology files or records, and no right to be heard). By the same token, third and sponsoring of sports goods and another on the use of cost-calculation parties cannot bindingly request the Secretariat or the Commission to

248 Cartel Regulation 2021 © Law Business Research 2020 CORE Attorneys Ltd Switzerland open a preliminary investigation or an investigation, respectively. The The competition authorities may use all kinds of evidence to estab- preliminary investigation shall determine whether an in-depth investiga- lish the facts, such as documents, information supplied by third parties, tion is necessary. The decision to open an investigation does not qualify testimony, and expert opinions. Moreover, according to article 42(2) as a formal decision and hence cannot be appealed. The Commission of the Cartel Act, members of the Commission’s presidium have the decides which in-depth investigations are pursued. power to order inspections or dawn raids and seizures upon request of The Secretariat must announce the opening of an in-depth inves- the Secretariat. The Swiss Federal Act on Criminal tigation by means of an official publication. Such announcement states applies by analogy to such proceedings. the purpose of the investigation and the names of the parties involved. The Secretariat published a note on selected instruments of inves- Furthermore, affected third parties may join the investigation as a party tigation in January 2016, in which it laid out its best practice particularly or as a third party without party status. As a third party without party with regard to inspections and the seizure of documents and electronic status, they have limited procedural rights. While, in principle, a request data. The representatives of the Secretariat in charge of the inspection to become involved as a party can be requested anytime, the involve- will, among other things, not wait for the arrival of external lawyers before ment as a third party without party status must be requested within 30 starting to search a premise. Any evidence discovered while the external days of the public announcement. lawyers were not present will, however, be set aside and only be screened All parties to the investigation are vested with the usual proce- once the lawyers are present. If deemed necessary, undertakings being dural rights. They may access files and suggest witness statements and raided may request the sealing of specific or even all documents and elec- have the right to be heard and to participate in hearings. The Secretariat tronic data. Moreover, legal privilege applies to any document produced conducts the investigation, but the Commission has the power to inter- in the course of the core professional activities of independent attorneys vene and to hold hearings, a right that the Commission has made admitted to the bar that are allowed to professionally represent parties in frequent use of in the recent past. Swiss courts. Importantly, legal privilege is not granted to work product The Secretariat is empowered to conduct investigations and, of in-house counsel. It applies irrespective of when such document was together with one presidium member of the Commission, to issue neces- created (ie, before or after an investigation was launched) and of where sary procedural rulings. On the basis of the conducted investigation, the such document is located, be it in the custody of the attorney, the client or Secretariat brings forward a motion for a draft of a decision, which is any other third party. Legal privilege may be invoked by the attorney, the comparable to the statement of objections in the European Union. The client and also every third party having a protected document in custody. parties and participating third parties are entitled to comment on such The Commission published a note on the decisional process in cartel draft decision. If important new facts emerge, another round of hear- investigations under the Cartel Act in October 2019. The note aims to ings and witness statements may take place. Formally, however, the increase transparency by, among other things, outlining the practice of decision itself is not issued by the Secretariat, but by the Commission. the Commission and the Secretariat in relation to their respective compe- Accordingly, the investigating and decision-making bodies are separate, tencies, organisation and procedural conduct, in particular with regard to even though at least one of the presidium members of the Commission the oral hearings of the parties, and the parties’ rights and obligations. is involved in some of the investigatory actions. In February 2020, the Secretariat published two notes providing An investigation can have one of the following outcomes. First, the a simple overview of the procedure of both preliminary and in-depth Commission may decide that there is no evidence of an unlawful agree- investigations. ment and close the investigation without any consequences. Second, the formal decision of the Commission can state that an agreement or INTERNATIONAL COOPERATION conduct is unlawful and order measures to restore effective competition or pronounce direct fines, as the case may be. Inter-agency cooperation There are no statutory time limitations applying to investigations. 13 Is there cooperation with authorities in other jurisdictions? If As a rule of thumb, a preliminary investigation takes, at a minimum, so, what is the legal basis for, and extent of, such cooperation? several months and a formal investigation at least one year and some- times several years. Switzerland was the first state to sign a second-generation cooperation agreement in competition matters with the European Union on 17 May Investigative powers of the authorities 2013. This agreement is not sector-specific and constitutes the legal 12 What investigative powers do the authorities have? Is court basis for the cooperation between the European Commission (but not approval required to invoke these powers? the member states) and the Swiss competition authorities. It facilitates significantly the exchange of information and the transmission of docu- The Secretariat has broad investigative powers. Such investiga- ments between both authorities, subject to specific requirements. The tive powers are checked by the Commission, in that a member of its agreement entered into force on 1 December 2014. The Swiss Federal presidium must authorise certain investigative instruments of the Act on Cartels and Other Restraints of Competition of 6 October 1995, as Secretariat for them to be applied legally. The Secretariat may hear amended (the Cartel Act) also provides for a specific regime with regard the parties that have allegedly committed the violation as well as to investigations in the air transportation industry (article 42a of the third parties concerned (such as competitors or suppliers) and ask for Cartel Act). Such investigations are governed by the agreement between written statements. It can compel testimony from witnesses, although the European Community and the Swiss Confederation on Air Transport not from the parties alleged to have entered into illegal anti-competitive of 21 June 1999, allowing sector-specific cooperation between the Swiss agreements. Any hearings or witness statements must be evidenced in Competition Commission and the European Commission on a formal legal the minutes. The parties involved have the right to access and comment basis. Moreover, on an informal basis, the Commission and its Secretariat on these minutes. cooperate with various national competition authorities in Europe such as Upon specific request for information, the undertakings under the German Federal Cartel Office as well as with the US anti-trust authori- investigation are also obliged to provide the Secretariat with all informa- ties (ie, the US Department of Justice and Federal Trade Commission). tion required for its investigation and to produce necessary documents In the absence of specific future cooperation agreements, such informal (article 40 of the Cartel Act), in due consideration of the right against cooperation is not allowed to go beyond the exchange of non-confidential self-incrimination. information. www.lexology.com/gtdt 249 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

Interplay between jurisdictions and the consequent applicable presumption of innocence, it is, however, 14 Which jurisdictions have significant interplay with your in any case for the authorities to prove that an undertaking acted, in fact, jurisdiction in cross-border cases? If so, how does this affect illegally by taking part in an agreement or concerted practices. the investigation, prosecution and penalising of cartel activity With regard to the level of proof required, as a general rule, only in cross-border cases in your jurisdiction? certainty in the sense that no reasonable doubts shall continue to exist with regard to the relevant facts is deemed sufficient. The existence of Investigations, prosecutions and sanctions decided by anti-trust author- purely theoretical doubts does not matter. Further, according to the ities abroad are not legally binding for the Commission and appellate Swiss Federal Supreme Court, exceptions to that rule only exist with courts. However, because of the supposedly congruent legal framework regard to complex economic issues, such as market definitions and as the one in the European Union, as referred to by the Swiss Federal substitutability questions. With regard to such issues, a prevailing prob- Supreme Court in its landmark decisions involving GABA International ability shall suffice as the required level of proof, since full proof is, by SA, the manufacturer of Elmex toothpaste, and Gebro Pharma GmbH, the nature of these matters, impossible. its Austrian licensee, of 28 June 2016 (2C_180/2014) and 4 April 2017 In the judgments of the Swiss Federal Administrative Tribunal in (2C_172/2014) respectively, and the fact that such regulatory frame- the bid-rigging case against building undertakings from the canton of work has often made significant inroads into the past Swiss competition Aargau of June 2018, the tribunal stated that a thorough assessment law practice, its case law will have a significant impact also on future of the evidence is required without a reduction of the burden of proof decisions taken by the Swiss authorities. or other facilitations, even if accusations from leniency applicants against other undertakings were submitted. The Federal Administrative CARTEL PROCEEDINGS Tribunal further clarified that accusations made in a voluntary report against other competitors are not sufficient evidence if the non-coop- Decisions erating undertakings deny these accusations. Instead, the competition 15 How is a cartel proceeding adjudicated or determined? authorities must take into account all the specific circumstances of a case (eg, the statements of the undertakings that filed a voluntary The Commission is the authority that is empowered to take decisions and report and the statements of the non-cooperating undertakings). If the remedial actions against cartels, and also to impose fines on undertak- situation remains unclear, further investigations and taking of evidence ings that violate Swiss competition law. It has wide decision-making and is needed, meaning that in practice, additional evidence that corrobo- remedial powers and can, among other things, also issue injunctions to rates the accusation of another undertaking must be found. terminate specific conduct or to change and modify a specific business practice. Moreover, a specific chamber of the Commission is empowered Circumstantial evidence to render partial decisions on the closure of proceedings, the approval 17 Can an infringement be established by using circumstantial of amicable settlements including other measures, in particular fines evidence without direct evidence of the actual agreement? and costs, for some of the parties while the case is decided or the proceeding is continued respectively for the other parties ((sequential) In line with the principle of free appraisal of evidence, the Commission hybrid cartel cases). The Commission’s Secretariat is responsible for and the appellate courts accept the establishing of a infringement of the conducting investigations and preparing cases and, together with one Federal Act on Cartels and Other Restraints of Competition of 6 October presidium member of the Commission, issuing necessary procedural 1995, as amended (the Cartel Act) by using circumstantial evidence rulings. In addition, an undertaking impeded by an unlawful restraint of without direct evidence of an actual agreement. Both direct evidence competition from entering or competing in a market may request before and circumstantial evidence are, a priori, considered to be of equal value the civil courts: and can be used to fulfil the required level of proof. That is, as a general • the elimination of the unlawful agreement or cartel; rule, certainty in the sense that no reasonable doubts shall continue to • an injunction against the unlawful agreement or cartel; exist with regard to the relevant facts. • damages; and • restitution of unlawful profits. Appeal process 18 What is the appeal process? Only civil courts have jurisdiction over claims for damages. However, in its decision of August 2019 in the matter Construction Works in Decisions of the Commission and, to a limited extent, interim procedural the Canton of Grisons, a bid-rigging case, the Commission considered decisions can be appealed to the Swiss Federal Administrative Tribunal compensation agreements with cartel victims (ie, awarding communi- within 30 days of notification of the decision. ties) as mitigating factors and reduced the fines for parties that entered The addressees of the decision have the right to appeal, whereas into such agreements. it is uncertain to what extent competitors, suppliers or customers have the same right. The decisive factor is whether these third parties are Burden of proof negatively affected by the decision of the Commission. In principle, only 16 Which party has the burden of proof? What is the level of third parties that suffer a clearly perceptible economic disadvantage proof required? as a consequence of an anti-competitive conduct shall be regarded as parties to an investigation and thus have the legal standing to appeal According to the principle of investigation, which applies generally in a decision. administrative proceedings and in particular in connection with cartel An appeal can be lodged on the following grounds: proceedings, the competition authorities and the appellate courts have • wrongful application of the Cartel Act; to investigate the facts ex officio. This obligation to investigate extends to • the facts established by the Commission and its Secretariat were justifications on the grounds of economic efficiencies. Nevertheless, the incomplete or wrong; or parties to the investigation or proceedings before the appellate courts • the Commission’s decision was unreasonable (this is rarely invoked are obliged to cooperate in assessing the facts and circumstances. in practice). Ultimately derived from the criminal law nature of cartel proceedings

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The appeal before the Swiss Federal Administrative Tribunal is a ‘full The maximum administrative sanction is a fine of up to 10 per cent of the merits’ appeal on both the findings of facts and law. However, in prac- consolidated net turnover realised in Switzerland during the past three tice, the Swiss Federal Administrative Tribunal grants the Commission a financial years (cumulative). The Ordinance on Sanctions lays down the significant margin of technical discretion. method of calculation of the fines. Judgments of the Swiss Federal Administrative Tribunal and, to a Furthermore, an undertaking that violates to its own advantage limited extent, interim procedural decisions, may be challenged before an amicable settlement, a legally enforceable decision of the Swiss the Swiss Federal Supreme Court within 30 days of notification of the Competition Commission or a judgment of the appellate courts can be decision. In proceedings before the Swiss Federal Supreme Court, judi- fined up to 10 per cent of the undertaking’s consolidated net turnover in cial review is limited to legal claims (ie, the flawed application of the Switzerland during the past three financial years (cumulative). In calcu- Cartel Act or a violation of fundamental rights set forth in the Swiss lating the fine amount, the presumed profit arising from such unlawful Federal Constitution, in the European Convention of Human Rights or practices shall be taken into due consideration. other international treaties). The claim that a decision was unreason- Furthermore, an undertaking that fails to provide information or able is fully excluded and claims with regard to the finding of facts are produce documents, or that only partially complies with its obligations basically limited to cases of arbitrariness. during an on-going investigation, can be fined up to 100,000 Swiss francs. In addition, the parties involved may at any time during and after Since individuals acting as private undertakings fall under the appeal procedures request the Swiss Federal Council to exceptionally Cartel Act, they can also be fined in cartel cases, as shown in the Upper authorise specific behaviour for compelling public interest reasons. To Valais Driving Instructor Cartel case in which the Commission sanc- date, such authorisation has never been granted. tioned also natural persons in its decision of March 2019. Judgments of the civil courts may ultimately be challenged before the Swiss Federal Supreme Court. If the legality of restraint of competi- Guidelines for sanction levels tion is disputed before a civil court, this question shall be referred to 21 Do fining or sentencing principles or guidelines exist? If yes, the Commission for an expert report. However, civil courts rarely refer are they binding on the adjudicator? If no, how are penalty such cases and the Commission’s expert opinion is not binding upon the levels normally established? What are the main aggravating civil courts. and mitigating factors that are considered?

SANCTIONS The principle of direct sanctions is set forth in article 49a of the Cartel Act. Sentencing guidelines are laid down in the Ordinance on Sanctions. Criminal sanctions The Commission has, in addition, issued an explanatory communication. 19 What, if any, criminal sanctions are there for cartel activity? According to the principles in the Ordinance on Sanctions, the penalty must be assessed on the basis of the duration and the severity of the There are no direct criminal sanctions for individuals as natural persons unlawful conduct, the probable profit that the undertaking has achieved for cartel activities. Swiss law does not provide for imprisonment for as a result of its conduct and the principle of proportionality. cartel conduct. However, individuals acting for an undertaking, but In a first step, the Commission determines the base amount of not the undertaking itself, violating a settlement decision, any other the fine which is up to 10 per cent of the consolidated net turnover enforceable decision or court judgment in cartel matters may be fined generated on the relevant markets in Switzerland cumulatively in the up to 100,000 Swiss francs. These sanctions are time-barred after five preceding three business years before the illegal conduct has ended, years following the incriminating act. depending on the severity and nature of the infringement. Individuals who intentionally fail to comply, or only partly comply, In a second step, the base amount is increased based on the dura- with the obligation to provide information in an on-going investigation tion of the infringement. can be fined up to 20,000 Swiss francs. Statute of limitations for these In a third step, aggravating factors (such as, recidivism, a leading sanctions is two years following the incriminating act. role in the illegal conduct, coercion of other cartel members, a particu- Individuals who can be fined include executives and board larly high profit as a result of the illegal conduct, or non-cooperation members, as well as all de facto managers and directors. with the authorities) or mitigating factors (such as a passive role in the illegal conduct, effective cooperation with the authorities, or a settle- Civil and administrative sanctions ment) influence the final amount of the fine. In its decision in the matter 20 What civil or administrative sanctions are there for cartel of Construction Works in the Canton of Grisons of August 2019, a bid- activity? rigging case, the Commission reduced sanctions substantially for those undertakings that agreed with cartel victims on compensation for From a civil law point of view, the sanction for cartel activities lies in the damages. Full immunity or a discount can also be obtained based on total or partial nullity of the agreement in question. Although generally leniency cooperation. accepted in the actual doctrine, it has not yet been confirmed that the Eventually, the Commission shall ensure that the penalty imposed nullity of the agreements applies from the outset. is proportional and that the maximum fine amount of up to 10 per cent From an administrative law point of view, under article 49a of the of the consolidated net turnover realised in Switzerland during the Federal Act on Cartels and Other Restraints of Competition of 6 October past three financial years (cumulative) is not exceeded. In particular, 1995, as amended (the Cartel Act), direct sanctions (fines) are imposed the sanction must also be in proportion to the financial capacity of the on undertakings that: concerned undertaking and as a matter of principle must not lead to the • participate in a hardcore horizontal cartel, according to article 5(3) bankruptcy of the concerned undertaking. of the Cartel Act (ie, agreements on prices, quantities or territories between competitors); • participate in hardcore vertical restraints pursuant to article 5(4) of the Cartel Act (ie, resale price maintenance or absolute territorial protection in distribution matters); or • abuse a dominant position, pursuant to article 7 of the Cartel Act. www.lexology.com/gtdt 251 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

Compliance programmes Parallel proceedings 22 Are sanctions reduced if the organisation had a compliance 25 Where possible sanctions for cartel activity include criminal programme in place at the time of the infringement? and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the There is no statutory provision under Swiss law according to which the choice of which sanction to pursue made? existence of a compliance programme would affect the level of a fine. It can be taken into consideration by the Commission when deciding on According to the Cartel Act, violation of an amicable settlement, a legally the level of fines. However, the Commission has been reluctant to do enforceable decision of the Commission or a judgment of the appellate so in its recent practice. In the absence of relevant case law, it is there- courts, as well as the failure to provide information or produce documents, fore disputed whether and to what extent compliance programmes may or the partial compliance with the obligation to provide information during reduce sanctions under Swiss competition law. an on-going investigation, are subject to administrative or criminal fines, In the landmark case involving GABA International SA, the manu- or both. Criminal prosecutions against individuals rely on similar criteria facturer of Elmex toothpaste, of 28 June 2016 (2C_180/2014), the to those applied in imposing administrative sanctions. However, the roles Swiss Federal Supreme Court reasoned that in this case, the compli- of individuals in the violation of a decision or judgment, or the failure to ance programme that has been in place at the time of the illegal comply with their obligations to provide information, as well as subjec- conduct had no relevance with regard to the determination of the tive criteria (degree of intent) are more important. Civil sanctions may sanction. The Swiss Federal Supreme Court argued in that regard that be accompanied by claims for damages and reparations or restitution of from a competition law perspective, compliance programs aimed at unlawful profits from third parties affected by the illegal cartel activity. preventing anti-competitive conduct in the first place through informa- tion and training of employees. Since in this case, the illegal conduct PRIVATE RIGHTS OF ACTION did not involve employees at lower levels of responsibility, but by senior management personnel that entered into an unlawful contract Private damage claims clause, the Swiss Federal Supreme Court concluded that the compli- 26 Are private damage claims available for direct and indirect ance programme could not be taken into account as a mitigating factor purchasers? Do purchasers that acquired the affected reducing the fine. This reasoning could be interpreted in such a way that product from non-cartel members also have the ability to depending on the merits of other cases, compliance programmes could bring claims based on alleged parallel increases in the indeed have a mitigating effect regarding sanctions. It remains to be prices they paid (‘umbrella purchaser claims’)? What level of seen, however, whether such argumentation will in fact be heard by the damages and cost awards can be recovered? authorities. The requirements for a compliance programme in order to be taken into account as a sanction-mitigating factor will in any event be Third parties affected by cartel conduct may sue the cartel members high, as has also been pointed out by the Swiss Federal Administrative for damages in civil courts. Their claim is limited to the damage actually Tribunal in its decision regarding Nikon in 2016. The mere existence of a incurred – no punitive damages are available in Switzerland – and the compliance programme should not be enough in that regard. passing-on defence is not excluded in Switzerland. However, a claimant A parliamentary motion by Rolf Schweiger (07.3856) that aimed at may request the remittance of illicitly earned profits. Court and legal providing an express legal basis for compliance programmes to have a costs, as determined by the court, must usually be borne by the losing sanction-mitigating effect was written off in 2014. Also, a parliamentary party in the proceedings. initiative by Dominique de Buman (16.473) that, among other things, Under Swiss law, the main difficulties are providing specific and addressed the same matter was withdrawn in 2017. sufficient proof of the damage incurred and establishing the required causal nexus between the anti-competitive agreement and the damage. Director disqualification This is even more difficult in the case of indirect purchaser claims. In 23 Are individuals involved in cartel activity subject to orders most instances, the claimant bears the burden of proof. prohibiting them from serving as corporate directors or In its decision in the matter of Road Construction of August 2019, a officers? bid-rigging case, the Swiss Competition Commission reduced sanctions substantially for those undertakings that agreed with cartel victims on No. There is no legal basis for such disqualification under Swiss compe- compensation for damages. It remains to be seen, however, whether tition law. this will provide a sufficiently strong incentive for cartelists to offer compensation for damages during an administrative proceeding before Debarment the Commission or whether they hold back and potentially face civil 24 Is debarment from government procurement procedures proceedings. automatic, available as a discretionary sanction, or not Umbrella purchaser claims have so far not played a relevant available in response to cartel infringements? role in Swiss case law. Also in legal literature, they have barely been discussed. While in theory such claims may not be excluded as such, The Cartel Act contains no specific regulation on the exclusion from public providing sufficient proof of the damage incurred and establishing procurement procedures in cases of illegal cartel conduct. However, the the required causal nexus would be very difficult in case of umbrella Swiss Public Procurement Act provides that the contracting authority purchaser claims. may exclude undertakings from an on-going procurement procedure or delete them from a list of qualified undertakings in cases of illegal cartel Class actions conduct. In addition, several cantonal procurement acts provide that 27 Are class actions possible? If so, what is the process for such undertakings may be banned from participating in procurement proce- cases? If not, what is the scope for representative or group dures for a period of several years in cases of illegal cartel conduct. actions and what is the process for such cases? However, no automatic exclusion applies at the federal or cantonal level. Class actions are not available under Swiss law. Consumers and consumer organisations may participate in investigations before the

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Commission but, in general, have no legal standing before civil courts. The Cartel Act does not expressly regulate the possibility for the Whether and to what extent trade associations have legal standing is a Commission to withdraw immunity after it has been granted in a final matter of dispute. decision. However, general principles of administrative procedural law Recent cases have shed some light into certain aspects of concepts usually enable administrative authorities to withdraw or amend final for the collective enforcement of legal claims under Swiss law and decisions (including final decisions with regard to immunity) under shown that legal claims used in other legal systems (ie, class actions certain exceptional circumstances, for example, if facts are discovered or model declaratory proceedings) are generally not provided for in the that justify such a withdrawal or amendment of a final decision. There is Swiss legal system. no cartel specific case law in that regard. However, the bar for immunity In the aftermath of the ‘Dieselgate’ – the Volkswagen emissions revocation has to be set very high. scandal – the Swiss Foundation for Consumer Protection (SKS) filed In addition, no fine will be imposed if undertakings notify a possible multiple lawsuits with the Zurich Commercial Court against Volkswagen hardcore restraint before it produces any effects (notification proce- and its general importer for Switzerland. Finally, SKS acquired claims dure). For that purpose, the Commission has published specific filing from approximately 6,000 consumers and non-consumers and accumu- forms. In contrast, a sanction may be imposed if the Commission lated these claims in a single lawsuit. However, the Commercial Court communicates to the notifying undertakings the opening of a prelimi- decided not to consider the merits of this case in the absence of the nary investigation or the opening of an in-depth investigation within a applicant’s capacity to bring proceedings. In a recent judgment, the period of five months following the notification and the undertakings Swiss Federal Supreme Court confirmed the lower court’s view that the continue to implement the notified restriction. legal action of SKS was not covered by the foundation’s purpose. Subsequent cooperating parties COOPERATING PARTIES 29 Is there a formal programme providing partial leniency for parties that cooperate after an immunity application has been Immunity made? If so, what are the basic elements of the programme? 28 Is there an immunity programme? If so, what are the basic If not, to what extent can subsequent cooperating parties elements of the programme? What is the importance of being expect to receive favourable treatment? ‘first in’ to cooperate? Pursuant to the Ordinance on Sanctions and the notice on leniency, full Leniency is an important aspect of cartel enforcement in Switzerland. immunity is limited to the ‘first in’. Going in second or later in the same According to the Federal Act on Cartels and Other Restraints of investigation will only allow for partial immunity. A reduction of up to 50 Competition of 6 October 1995, as amended (the Cartel Act), an under- per cent of the fine amount is available at any time in the proceeding to taking that cooperates with the Swiss Competition Commission in view undertakings that do not qualify for full immunity. of the discovery and the elimination of a restraint of competition may Further, the fine amount can be reduced up to 80 per cent if an benefit from full or partial immunity. Only the first applicant may enjoy undertaking provides information to the Commission about other hard- full immunity and rather high thresholds apply. core restraints that were unknown to the Commission at the time of The leniency programme particularly applies to (horizontal and their submission (‘leniency plus’). This reduction is without prejudice vertical) hardcore restraints. The Commission may grant full immunity to any possible full immunity or partial reduction of a fine for the newly from a fine if an undertaking is the first to either: disclosed infringements. • provide information enabling the Commission to open an investi- The continuous cooperation with the Commission throughout the gation and the Commission itself did not have, at the time of the investigation without restrictions or delay is an indispensable require- leniency filing, sufficient information to open a preliminary investi- ment for receiving a fine reduction. The decisive factor for determining gation or an in-depth investigation; or the reduction percentage is the importance of the undertaking’s contri- • submit evidence enabling the Commission to prove a hardcore bution to the success of the proceedings (the position in the queue is restraint, provided that no other undertaking must already be not per se relevant). considered first leniency applicant qualifying for full immunity and that the Commission did not have, at the time of the leniency filing, Going in second sufficient evidence to prove an infringement of the Cartel Act in 30 How is the second cooperating party treated? Is there an connection with the denounced conduct. ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, However, immunity from a fine will not be granted if the undertaking: how does it operate? • coerced any other undertaking to participate in the infringement and was the instigator or ringleader; Being the second or third or subsequent cooperating party will not allow • does not voluntarily submit to the Commission all information or for full, but only partial, immunity of up to 50 per cent of the fine amount. evidence in its possession concerning the illegal anti-competitive However, as the decisive factor for determining the leniency bonus is practice in question; the contribution to the success of the proceedings. Being second alone • does not continuously cooperate with the Commission throughout does not guarantee a better bonus than the one for the subsequent the investigation without restrictions or delay; or cooperating parties. • does not cease its participation in the Cartel Act infringement volun- In addition, there is a ‘leniency plus’ option with a fine reduc- tarily or upon being ordered to do so by the competition authorities. tion of up to 80 per cent if an undertaking provides information to the Commission about other hardcore restraints that were unknown to the In September 2014, the Commission’s Secretariat published a revised Commission at the time of their submission. notice on leniency, which included a form for leniency applications. The notice was slightly revised in August 2015 and again in January 2019. In August 2020, the Swiss competition authorities introduced the possibility of setting paperless markers for leniency applications via an online form (electronic markers). www.lexology.com/gtdt 253 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

Approaching the authorities Confidentiality 31 Are there deadlines for initiating or completing an application 33 What confidentiality protection is afforded to the immunity for immunity or partial leniency? Are markers available and applicant? Is the same level of confidentiality protection what are the time limits and conditions applicable to them? applicable to subsequent cooperating parties? What information will become public during the proceedings and There are no statutory deadlines for submitting leniency applications or when? for perfecting a leniency marker. However, pursuant to the Cartel Act, full immunity is limited to the ‘first in’ but also possible for cooperation The right of access to witness statements, hearing minutes and other that enables the Commission to prove a Cartel Act infringement and documents relevant to the investigation may be limited to protect coop- therefore when a preliminary or in-depth investigation has already been erating parties. The level of confidentiality protection is the same for opened and a dawn raid conducted. Therefore, it is important to decide all leniency applicants. Anonymous leniency applications are allowed, immediately upon knowledge of an opened investigation and conducted although the leniency applicant will be required to reveal its identity within dawn raid whether to cooperate with the competition authorities and, if a specific time frame established by the Secretariat on an ad hoc basis. such cooperation is desired, to submit a leniency marker or application The Commission and the Secretariat are aware of a leniency appli- to the Commission without delay (in writing, such as by email, orally by cant’s particular need for confidentiality and, in the recent past, have protocol declaration, or online by electronic marker – another form of established several measures to protect the leniency applicants’ interests paperless communication with the Commission that was introduced in in that regard. However, these measures have not been tested in court August 2020). Importantly, it is not possible to submit a leniency marker so far. The catalogue of protective instruments includes the possibility to via telephone or, since January 2019, by fax. submit oral leniency statements, paperless proceedings and restricted According to past investigations with several leniency applicants, access to the files. Access rights of other parties subject to an investiga- the decision which undertaking may qualify for full immunity may be tion were, in the Secretariat’s practice, limited to access the files at the made in a matter of days or even hours. premises of the Secretariat. The right to take photocopies was limited to annexes, while copies of the main body of corporate statements or Cooperation hearing minutes were not allowed. In addition, access to the files was 32 What is the nature, level and timing of cooperation that only granted shortly before the Secretariat provided the Commission and is required or expected from an immunity applicant? Is the parties with the draft decision (ie, shortly before the end of an inves- there any difference in the requirements or expectations tigation and the Commission’s decision on the merits). The Secretariat for subsequent cooperating parties that are seeking partial has also implemented a number of specific internal measures to protect leniency? the leniency applicants’ interests. Internal access to the file is restricted, and only the case team knows about the existence or identity of leniency The voluntary submission of all information or evidence in the applying applicants. Moreover, the leniency documents are stored in a separate undertaking’s possession concerning the unlawful practice, the contin- file. The above practice has been set out by the Secretariat in the notice uous cooperation with the Commission throughout the proceeding on leniency. without restrictions or delay, as well as discontinuing its involvement With judgments of August 2016, the Swiss Federal Administrative in the infringement no later than the moment at which it provides Tribunal has authorised the Commission to grant access to certain data of information or submits evidence concerning the unlawful practice or a closed cartel investigation regarding a bid-rigging cartel in the construc- upon receipt of the first injunction of the Commission are indispen- tion sector to municipalities seeking civil damage claims. In doing so, the sable requirements for receiving full immunity or a partial reduction tribunal limited the access to files in various respects. First, data may only of the fine. be accessed to the extent necessary, and data retention for later use is In its recent practice, the Secretariat has repeatedly insisted that not permitted. Second, access is limited to data that ‘directly affects’ the a leniency applicant must at least admit its involvement in an unlawful requesting party. Third, access may only be granted and data may only be agreement subject to potential sanctions. It made clear that it is not used to serve the purpose disclosed in the access request and a legally sufficient to simply produce factual elements. In the Secretariat’s view, binding restriction of use must be imposed on the requesting party to that a leniency applicant would in principle have to admit that the unlawful effect. Fourth, access to the files must not include data of undertakings agreement had effects on the markets. However, the recent decisions that finally had not been addressees of the decision. of the Swiss Federal Administrative Tribunal in the Metal Fittings for The tribunal, however, did not have to decide on information requests Windows case clearly state the right of the leniency applicants to argue of private undertakings where the conditions applied by the court could against the Commission’s legal interpretation of the facts. Only two all the more be relevant. Also, the tribunal did not have to formally decide of these three judgments have not yet become final and been handed on the issue of access to leniency application data, since the Commission down to the Swiss Federal Administrative Tribunal again by the Swiss excluded all leniency information before providing it to the municipali- Federal Supreme Court. ties. However, the tribunal did at least not question this practice of the Where an undertaking does not meet these conditions, but has Commission to exclude leniency information completely from access by cooperated with the Commission and terminated its involvement in the third parties. Whether these third parties are public or private entities infringement no later than the time at which it submitted evidence, the should have no bearing. Commission still has the possibility to reduce the fine. In the case of opening an investigation, the Secretariat gives notice by way of official publication. The notice states the purpose of and the parties to the investigation. There is no express obligation to keep the identity of the leniency applicants confidential. In practice, the Secretariat keeps the leniency applicant’s identity confidential as long as possible. However, even if the final decision does not reveal the name of the leni- ency applicant, it is not excluded that a party familiar with the facts of the case may deduce its identity from the context. In addition, the competition authorities’ publications must not reveal any business secrets.

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Settlements individuals who intentionally fail to comply or only partly comply with 34 Does the investigating or prosecuting authority have the the obligation to provide information in an on-going investigation can be ability to enter into a plea bargain, settlement, deferred fined up to 20,000 Swiss francs, and individuals acting for an undertaking prosecution agreement (or non-prosecution agreement) or violating a settlement decision, or other enforceable decisions or court other binding resolution with a party to resolve liability and judgments in cartel matters, may be fined up to 100,000 Swiss francs. penalty for alleged cartel activity? What, if any, judicial or other oversight applies to such settlements? Dealing with the enforcement agency 36 What are the practical steps for an immunity applicant or Amicable settlements are an important feature of the Swiss cartel subsequent cooperating party in dealing with the enforcement enforcement regime. During preliminary investigations, the Secretariat agency? may propose measures to eliminate or prevent restrictions of competi- tion. In the framework of an investigation, if the Secretariat considers The Secretariat will acknowledge receipt of the leniency application (ie, that a restraint of competition is unlawful, it may propose to the under- the leniency marker, if any, or the leniency statement). It will specify the takings involved an amicable settlement concerning ways to eliminate exact date and time of receipt and, in case of a leniency marker, the time future restrictions. Hence, amicable settlements solely deal with an frame within which the undertaking shall perfect such leniency marker undertaking’s conduct in the future, meaning that a party can voluntarily with a full corporate statement. Subsequently and with the consent of one undertake to terminate respectively not to commit certain illegal conduct presidium member of the Commission, the Secretariat will communicate any more. However, the fine amounts to be imposed for illegal conduct to the applicant whether it deems that the conditions for full immunity in the past cannot be agreed on – Swiss competition law does contem- from fines are met, any additional information that the disclosing under- plate plea bargaining. This also means that, in principle, an undertaking taking should submit and, in cases of anonymous disclosure, the time is allowed to appeal against a decision of the Commission and the frame within which the undertaking shall reveal its identity. imposed fine even if it has entered into an amicable settlement. It would be inadmissible to request a formal waiver of a party’s right of appeal. DEFENDING A CASE Nonetheless, in practice, the Secretariat requests a party to a settle- ment agreement to confirm in writing that no grounds to appeal the final Disclosure decision exist if the Commission will finally approve such agreement 37 What information or evidence is disclosed to a defendant by and does not exceed the framework of a possible fine set out therein; the enforcement authorities? such requested memorandum of understanding should also be deemed to be void. While during the preliminary investigation procedure, there is no right Amicable settlements shall be formulated in writing and approved of access to file, the defendant has such right after the opening of an by the Commission, typically in its decision on the merits. The in-depth investigation. The files include submissions from parties and Commission shall either approve the amicable settlement as proposed the comments made thereon by the authorities, any documents serving by the Secretariat, or refuse to do so and send it back to the Secretariat as evidence as well as copies of rulings already issued. The authority and suggest amendments. According to the Commission, it cannot may under certain conditions (eg, owing to essential public or private amend the terms of a settlement on its own. However, it did so in one interests) refuse access to a file. In particular, access to a file may be case, namely by setting a time limit to the amicable settlement. limited with respect to business secrets as well as information regarding Amicable settlements are binding upon the parties and the leniency applications of other parties. Commission and may give rise to administrative and criminal sanctions in the case of a breach of any of its provisions by the parties. Amicable Representing employees settlements do not hinder the Commission from imposing fines on the 38 May counsel represent employees under investigation in parties if they have committed illegal hardcore infringements in the past. addition to the corporation that employs them? When should Yet concluding an amicable settlement is generally regarded as coop- a present or past employee be advised to obtain independent erative conduct and is taken into account as a mitigating factor when legal advice or representation? calculating the fine. In recent cases, reaching an amicable settlement has led to a reduction of the fines of about 10 to 20 per cent. However, the Under Swiss law, counsel may represent the employees under investiga- Commission takes the moment of the amicable settlement very much tion as well as the undertaking provided that it discloses the fact to both into account. In a late settlement case, the Commission only reduced parties and that there is no conflict of interest. Given that two different the fine by 3 per cent and indicated that it would not reduce fines any kinds of sanctions apply to individuals and undertakings, as a general more if amicable settlements are signed after the Secretariat’s second rule, it is advisable to seek independent legal advice and representa- draft decision. tion. This seems all the more relevant since according to recent (and heavily criticised) practice of the Secretariat, with the exception of actual Corporate defendant and employees (formal or de facto) board members of an undertaking, current and past 35 When immunity or partial leniency is granted to a corporate employees are treated as third parties (witnesses or informants), but not defendant, how will its current and former employees be as party representing the concerned undertaking. treated? Multiple corporate defendants There is no effect on employees of the defendant. They are not addressees 39 May counsel represent multiple corporate defendants? Does it of administrative sanctions and, hence, the granting of immunity or depend on whether they are affiliated? partial leniency concerning a corporate defendant has, in principle, no effect on current and former employees. Employees might, however, be Under the Cartel Act, the Commission may require groups of more subject to criminal penalties if they committed a corresponding offence than five parties in a cartel proceeding to appoint a common repre- in connection with the undertaking’s conduct leading to the administra- sentative, provided that these parties have identical interests and if the tive sanction (for instance, fraud or forgery of a document). Further, investigation would be unduly complicated otherwise. In practice, the www.lexology.com/gtdt 255 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

Secretariat mainly applies this rule in cases involving trade associa- Getting the fine down tions and provided that the members of such trade associations agree 43 What is the optimal way in which to get the fine down? to one representative. Besides, under Swiss law, counsel may represent multiple corporate defendants, provided that it discloses the fact to all Generally, the best way to influence the level of fines is to fully cooperate undertakings and that there is no conflict of interest. Since affiliated with the competition authorities as early as possible and to disclose all companies are treated as one undertaking in the sense of the Cartel Act relevant facts if the undertaking according to its self-assessment has (the possibility to exercise decisive influence is the relevant test crite- committed a hardcore infringement. An undertaking cooperating with rion), representation of such group of companies by the same counsel is the competition authorities in view of the discovery and the elimina- the rule (ie, possible without restrictions). tion of a restraint of competition may enjoy full or partial immunity of up to 50 per cent. Moreover, an amicable settlement with the authority Payment of penalties and legal costs may also result in an additional reduction of the potential fine of up to 40 May a corporation pay the legal penalties imposed on its 20 per cent. employees and their legal costs? Further, it is more important than ever for undertakings whose activities may produce effects in Switzerland to be fully aware of the Corporations can pay the legal costs of their employees. However, the potential implications of Swiss competition law for their agreements employees remain personally liable for any imposed criminal sanctions. and practices. It is often advisable for undertakings active in Swiss markets to implement an effective anti-trust compliance programme Taxes or to undertake a competition law-related due diligence of their agree- 41 Are fines or other penalties tax-deductible? Are private ments or practices to identify possible violations of Swiss competition damages payments tax-deductible? law, and to take appropriate measures to reduce their potential expo- sure to investigations and fines. With a judgment of September 2016, the Swiss Federal Supreme Court There is no statutory provision under Swiss law according to which clarified that fines and other sanctions of a criminal nature are not the existence of a compliance programme would affect the level of a fine. tax-deductible for legal entities, as they are not deemed to be busi- It can be taken into consideration by the Commission when deciding on ness-related expenses that would be tax-deductible under Swiss law. the level of fines. However, the Commission has been reluctant to do so According to the Swiss Federal Supreme Court, tax-deductibility is only in its recent practice and there is no legal certainty as to the sanction- possible insofar as fines aim at disgorging illegally obtained profits mitigating effect of a compliance programme. (ie, fines that do not have a criminal or punitive purpose but aim at correcting an unlawful situation). It is thus essential for Swiss (corpo- UPDATE AND TRENDS rate) income tax purposes to distinguish sanctions with a penal nature from such aiming at disgorging illegally obtained profits. The Swiss Recent cases Federal Supreme Court handed down the judgment to the lower instance 44 What were the key cases, judgments and other developments to assess this question in light of the facts of the case. The judgment was of the past year? rendered in a case of violation of EU competition law. The same outcome may be expected in case of violations of the Cartel Act. The year 2020 has so far been marked by the coronavirus pandemic and In this context, it is noteworthy that in a draft bill submitted to the the lockdown in Switzerland. As a result, since the autumn of 2019, the Swiss parliament, an explicit legal basis provides that financial adminis- Swiss Competition Commission has only taken a few decisions or closed trative sanctions of criminal nature, such as direct fines under the Cartel investigations respectively in the area of cartels. The following cases Act, as well as the related cost of proceedings, shall not be deductible, are the most relevant. whereas profit disgorgement sanctions with non-penal purpose, shall be In September 2019, the Commission decided on the two last of tax-deductible. The matter has passed the Swiss parliament. The date of overall 10 investigations in the Canton of Grison in the construction entry into force of this federal law, however, has not yet been determined. sector. These decisions concerned the Road Construction matter and Private damages awards that take place in the ordinary course of the Engadin II matter, of which the Road Construction seems of wider business qualify in principle as business expenses and are deductible interest. Eight of the 12 construction companies involved in the Road from profit taxes. Construction matter submitted leniency applications or acknowledged the facts of the case. This led to a fine reduction of 14 million Swiss International double jeopardy francs. Furthermore, nine of the concerned undertakings entered into 42 Do the sanctions imposed on corporations or individuals take settlement agreements with cartel victims regarding compensation for into account any penalties imposed in other jurisdictions? In damages in the total amount of 6 million Swiss francs. Based thereon, private damage claims, is overlapping liability for damages in the Commission reduced the fine for these nine undertakings by 3 other jurisdictions taken into account? million Swiss francs in total. The sanction reduction owing to settle- ment agreements with cartel victims in an on-going investigation is It is in the Commission’s discretion to take into account sanctions unprecedented in Swiss law. In the end, the Commission fined the 12 imposed in other jurisdictions. The Commission states in its explana- construction companies a total of 11 million Swiss francs for bid-rigging. tory communication on the Ordinance of Sanctions that for the sake In December 2019, the Commission concluded its investiga- of reasonability of sanctions, it may consider administrative sanctions tion against Brenntag Schweizerhall AG (Brenntag) and Bucher AG imposed outside Switzerland. However, there is no statutory obligation Langenthal (Bucher) with an amicable settlement. The Commission in this respect and, so far, the Commission has not considered foreign found that from 2014 to 2017, the two undertakings agreed on the allo- sanctions as a mitigating factor in its case law. In private damage claims, cation of their customers of the product AdBlue. AdBlue is an aqueous it could be argued that damages paid for the same conduct in another urea solution that reduces nitrogen oxide emissions from diesel jurisdiction could be taken in consideration in order to determine the engines. In the amicable settlement, the two companies committed to effective damage of the party. refrain from splitting up customers in the distribution of this product in the future. In its decision, the Commission took into account the fact that

256 Cartel Regulation 2021 © Law Business Research 2020 CORE Attorneys Ltd Switzerland

Brenntag is both a supplier and a competitor of Bucher. As the vertical supply relationship between Brenntag and Bucher was the main issue in this case, the Commission refrained from imposing a fine. It is now becoming apparent that the Commission has come more active again since late summer 2020. The following cases are of particular interest. After having closed all 10 bid-rigging investigations in the Canton of Grisons in 2019, as mentioned above, in June 2020 the Commission has opened a new investigation with regard to possible bid-rigging in Mario Strebel [email protected] the construction sector in the Moesa region. The Commission had indi- cations based on information received from the Canton of Grisons that Fabian Koch several companies in the rather remote Moesa region in the south of [email protected] the Canton of Grisons have entered into bid-rigging arrangements. The Commission carried out dawn raids. Dufourstrasse 105 In September 2020, the Commission opened an investigation 8008 Zurich against several wholesale and retail companies and their debt collection Switzerland and services agency. The investigation focuses on alleged anti-compet- Tel: +41 43 555 70 00 itive measures against various suppliers of daily consumer goods. In www.core-attorneys.com particular, the investigation will examine whether coordinated meas- ures have been taken to encourage suppliers to use the debt collection platform, in particular through the threat of collective delisting of certain daily consumer goods. The opening of this investigation was procurement of goods and services abroad. It demands that under­ accompanied by dawn raids at the premises of certain addressees of takings that are dependent on other undertakings be able to purchase subjects of the investigation. goods or services offered in Switzerland and abroad in the country of their choice at the prices that are practised there. This is to be achieved Regime reviews and modifications by introducing the concept of ‘relative market power’ into the Cartel Act. 45 Are there any ongoing or anticipated reviews or proposed The initiative also calls for Swiss consumers to be able to shop online changes to the legal framework, the immunity/leniency without discrimination. programmes or other elements of the regime? On 29 May 2019, the Federal Council submitted its message and the draft federal resolution in response to this initiative to the Swiss Consultation on revising the Cartel Act parliament. Therein, it recommends the rejection of the popular initia- In February 2020, the Federal Council instructed the Federal Department tive together with an indirect counterproposal based on the concept of of Economics, Education and Research to prepare a consultation draft relative market power and only regulating import issues. The Swiss for a partial revision of the Cartel Act. An important element of the parliament has considered the proposal and prepared a parliamentary suggested technical revision of the law is the modernisation of the counterproposal. It is not yet known when the initiative will be put to a Swiss merger control regime. Studies show that this is expected to have popular vote. positive effects on competition in Switzerland. The aim is to switch from the current qualified dominance test to the Significant Impediment to Motion by Pirmin Bischof – Online hotel booking systems Effective Competition test. In accordance with the decision of the Swiss A motion by Pirmin Bischof of 30 September 2016, ‘Prohibition of adhe- parliament of 5 March 2018, two requests of Motion Fournier 16.4094 sion contracts of online booking platforms against the hotel industry’, ‘Improvement of the situation of SMEs in competition law proceedings’ calls on the Federal Council to submit the necessary legislative shall also be included in the envisaged partial revision. On the one hand, amendments in order to prohibit ‘narrow price parity clauses’ in the regulatory time limits shall be introduced for the Commission and the contractual relationship between online booking platforms and hotels. appellate courts in order to speed up the respective administrative Narrow price parity clauses allow hotels to vary their prices depending procedures. On the other hand, compensation for parties at all stages of on the booking platform and in all offline booking channels. However, the administrative competition law procedure shall be granted (ie, also they may not undercut the contracting party on their own website. for the proceeding before the Commission). In its decision on online booking platforms for hotels, the Commission qualified ‘broad price parity clauses’, with which the Motion by Français Olivier – The Elmex toothpaste matter online booking platforms prohibited the affiliated hotels from offering The motion by Français Olivier of 13 December 2018 – ‘The revision of their rooms on a different distribution channel at a lower price than the Cartel Act must take into account both qualitative and quantitative on the participating online booking platform, as unlawful competition criteria to assess the inadmissibility of a competition agreement’ – called agreements within the meaning of article 5(1) of the Cartel Act. The on the Federal Council to amend article 5 of the Cartel Act in response Commission left the question open whether the narrow price parity to the landmark decisions involving GABA International SA, the manu- clauses introduced by booking platforms throughout Europe are admis- facturer of Elmex toothpaste, and Gebro Pharma GmbH, its Austrian sible under Swiss competition law. Furthermore, it reserved the right to licensee, of 28 June 2016 (2C_180/2014) and 4 April 2017 (2C_172/2014) investigate in this regard if required. respectively. The motion is pending in the Swiss parliament. On 18 September 2017, the Swiss parliament passed the motion on to the Federal Council. The Federal Department on Economic Affairs, Fair price initiative and indirect counterproposal Education and Research is currently elaborating a consultation draft in The federal popular initiative ‘Stop the high price island – for fair prices’ this matter. (the fair price initiative) was submitted on 12 December 2017. The initia- tive promises to create the basis for effective legal measures against abusive Swiss surcharges and to guarantee the non-discriminatory www.lexology.com/gtdt 257 © Law Business Research 2020 Switzerland CORE Attorneys Ltd

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

With regard to competition law, neither the Swiss Competition Commission, the Swiss parliament or the Swiss Federal Council have implemented any sort of emergency legislation, relief programmes or enforcement policies or other initiatives related to competitor conduct to address the pandemic. In March 2020, the Commission issued a press release highlighting that it will not tolerate companies exploiting the coronavirus crisis to restrict competition. The Commission stressed that undertakings must nevertheless comply with anti-trust law, even if the crisis may lead to an increased need for cooperation and has thereby put specific emphasis on the fact that the overall economic situation must not be misused to form cartels and agree on prices. However, the Commission also stated that it is aware that special times require special measures and that it is available for information and stands ready for discussions with asso- ciations, companies and other authorities on the design of measures to combat the coronavirus crisis in conformity with Swiss competition law.

258 Cartel Regulation 2021 © Law Business Research 2020 Turkey

Gönenç Gürkaynak and K Korhan Yıldırım ELIG Gürkaynak Attorneys-at-Law

LEGISLATION AND INSTITUTIONS Changes 3 Have there been any recent changes, or proposals for change, Relevant legislation to the regime? 1 What is the relevant legislation? One of the most important amendments in the Amendment Law is the The relevant legislation on cartel regulation is the Law on Protection introduction of a de minimis principle, bringing Turkish competition of Competition No. 4054 of 13 December 1994 (the Competition Law). law closer to that of EU law. This amendment enables the Board to The Competition Law finds its underlying rationale in article 167 of decide against launching full-fledged investigations into agreements, the Turkish Constitution of 1982, which authorises the government concerted practices and decisions of associations of undertakings that to take appropriate measures and actions to secure a do not exceed thresholds determined by the Board (eg, a certain market economy. The applicable provision for cartel-specific cases is article 4 share level or turnover). This principle does not apply to hardcore viola- of the Competition Law, which lays down the basic principles of cartel tions such as price-fixing, territory or customer sharing, or restriction regulation. of supply. With this new mechanism, the Turkish Competition Authority After rounds of revisions and failed attempts of enactment over a appears to be steering its direction, and public resources, towards span of several years, a proposed amendment to the Competition Law investigating significant violations. (the Amendment Proposal) has been approved by the Grand National The introduction of the de minimis principle appears to be a more Assembly of Turkey (the Turkish parliament). On 16 June 2020, the appropriate (and legally less controversial) measure for the Authority to amendments passed through the parliament and entered into force on prioritise cases, which has previously used article 9(3) of the Competition 24 June 2020 (the Amendment Law), which was published in Official Law to terminate a pre-investigation on procedural efficiency grounds, Gazette on 23 June 2020, No. 31165. According to the recital of the such as when an infringement only affects a small market (eg, the Izmir Amendment Proposal, these amendments add the Authority’s experi- Container Transporters decision, (20–01/3–2, 02.01.2020). Article 9(3), ence of more than 20 years of enforcement to the Competition Law and however, is an interim measure the Board may use to explain to compa- bring it closer to European Union law. nies how to terminate an infringement until its final decision is made. It still remains to be seen whether the introduction of the de minimis Relevant institutions exception will end the excessive use of article 9(3) altogether, given that 2 Which authority investigates cartel matters? Is there hardcore restrictions in small markets will still not benefit from the de a separate prosecution authority? Are cartel matters minimis provision. The Amendment Law refers to ‘turnover’ and ‘market adjudicated or determined by the enforcement agency, a share’ thresholds for the de minimis exceptions but leaves the setting of separate tribunal or the courts? thresholds to the Board. It is therefore not yet clear how the Board will define the limits of the safe harbour the new law has introduced. That The national authority for investigating cartel matters in Turkey is the said, given the goal of the Amendment Law is to bring the Competition Competition Authority. The Competition Authority has administrative Law closer to EU law, it would be fair to expect that the threshold will and financial autonomy and consists of the Competition Board (the be based on the European Commission’s Notice on agreements of minor Board), presidency and service departments. Five divisions with sector- importance that do not appreciably restrict competition under article specific work distribution handle enforcement of the Competition Law 101(1) of the Treaty on the Functioning of the European Union (TFEU) through approximately 130 case handlers. A research department, a (the De Minimis Notice). The Commission also has another Notice on decisions unit, an information-management unit, an external-relations the Effect on Trade, (Commission Notice — Guidelines on the effect on unit, a management services unit, and a strategy development unit trade concept contained in articles 81 and 82 of the Treaty; OJ C 101, assist the five technical divisions and the presidency. As the competent 27.4.2004, p. 81–96), which provides that even agreements including a body of the Competition Authority, the Board is responsible for, among restriction by object may fall outside the scope of article 101 TFEU if the other things, investigating and condemning cartel activity. The Board parties’ combined market share is 5 per cent or less and their aggre- consists of seven independent members. If a cartel activity amounts to gate annual turnover is €40 million or less. Given that the Amendment a criminally prosecutable act, such as bid rigging in public tenders, it Law excludes hardcore restrictions from the safe harbour, however, the may be separately adjudicated and prosecuted by Turkish penal courts Authority may have been more heavily influenced by the De Minimis and public prosecutors. Notice in preparation of the Amendment Law rather than the Notice on the Effect on Trade. The De Minimis Notice could be a reference point for the Board to determine the de minimis threshold for Turkish law. The Amendment Law brought about other significant changes, such as the introduction of settlement and commitment mechanisms. www.lexology.com/gtdt 259 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

There is also the amended Guidelines on Vertical Agreements, the de minimis principle, whereby the Board will be able to decide to which was published on 30 March 2018, which includes provisions not launch full-fledged investigations into agreements, concerted prac- concerning internet sales and most favoured customer clauses. tices and decisions of association of undertakings that do not exceed the Currently, an expected and significant development in Turkish thresholds determined by the Board (eg, a certain market share level competition law is the Draft Regulation on Administrative Monetary Fines or turnover). for the Infringement of the Competition Law, which is set to replace the Article 4 prohibits agreements that restrict competition by object or Regulation on Monetary Fines for Restrictive Agreements, Concerted effect. The assessment whether the agreement restricts competition by Practices, Decisions and Abuse of Dominance (the Regulation on Fines). object is based on the content of the agreement, the objectives it attains The draft regulation is heavily inspired by the European Commission’s and the economic and legal context. The parties’ intention is irrelevant guidelines on the method of setting fines imposed pursuant to article to the finding of liability but it may operate as an aggravating or miti- 23(2)(a) of Regulation 1/2003. The draft regulation was sent to the gating factor, depending on circumstances. Article 4 also prohibits any Turkish parliament on 17 January 2014, but no enactment date has form of agreement that has the potential to prevent, restrict or distort been announced as yet. However, its introduction demonstrates the competition. Again, this is a specific feature of the Turkish cartel regu- Competition Authority’s intention to bring secondary legislation in line lation system, recognising a broad discretionary power of the Board. with EU competition law during the harmonisation process. Both actual and potential effects are taken into account. Pursuant to Finally, the following key legislative texts were announced or the Guidelines on Horizontal Cooperation Agreements, the restrictive enacted between 2013 and the time of writing: effects are assessed on the basis of their adverse impact on at least • Block Exemption Communiqué No. 2016/5 on R&D Agreements; one of the parameters of the competition in the market, such as price, • Block Exemption Communiqué No. 2017/3 on Vertical Agreements output, quality, product variety or innovation. Article 4 brings a non- in the Motor Vehicle Sector; exhaustive list of restrictive agreements that is, to a large extent, the • Communiqué No. 2017/2 Amending the Communiqué on Mergers same as article 101(1) TFEU. The list includes examples such as price- and Acquisitions Calling for the Authorisation of the Competition fixing, market allocation and refusal-to-deal agreements. A number of Board (Communiqué No:2010/4); horizontal restrictive agreement types, such as price-fixing, market • Communiqué on the Increase of the Lower Threshold for allocation, collective refusals to deal (group boycotts) and bid rigging, Administrative Fines Specified in paragraph 1, article 16 of Act No. have consistently been deemed to be per se illegal. Certain other types 4054 on the Protection of Competition (Communiqué No. 2019/1); of competitor agreements such as vertical agreements and purchasing • Guidelines Explaining the Block Exemption Communiqué on cartels are generally subject to a competitive effects test. Vertical Agreements in the Motor Vehicle Sector (Communiqué No The prohibition on restrictive agreements and practices does not 2017/3) enacted on 7 March 2017; apply to agreements that benefit from a block exemption or an indi- • Guidelines on the Evaluation of the Abuse of Dominance through vidual exemption (or both) issued by the Board. The applicable block Discriminatory Practices, enacted on 7 April 2014; exemption rules are: • Guidelines on Exclusionary Abusive Conducts by Companies in • Block Exemption Communiqué No. 2002/2 on Vertical Agreements; Dominant Positions, enacted on 29 January 2014; • Block Exemption Communiqué No. 2017/3 on Vertical Agreements • Block Exemption Communiqué on Specialisation Agreements and Concerted Practices in the Motor Vehicle Sector; (Communiqué No. 2013/3), entered into force on 26 July 2013; • Block Exemption Communiqué No. 2008/3 for the Insurance Sector; • Guidelines on Undertakings Concerned, Turnover and Ancillary • Block Exemption Communiqué No. 2008/2 on Technology Transfer Restraints in Mergers and Acquisitions, enacted on 26 March 2013; Agreements; • Guidelines on Active Cooperation for the Exposure of Cartels, • Block Exemption Communiqué No. 2013/3 on Specialisation enacted on 17 April 2013; Agreements; and • Guidelines on the Protection of Horizontal Agreements in line with • Block Exemption Communiqué No. 2016/5 on R&D Agreements. articles 4 and 5 of the Competition Law, Act No. 4054, enacted on 30 April 2013; These are all modelled on their respective equivalents in the EU. The • Guidelines on the Assessment of Horizontal Mergers and most recent of these block exemptions – Block Exemption Communiqué Acquisitions, enacted on 4 June 2013; No. 2017/3 on Vertical Agreements in the Motor Vehicle Sector – sets • Guidelines on the Assessment of Non-horizontal Mergers and out revised rules for the motor vehicle sector in Turkey, overhauling Acquisitions, enacted on 4 June 2013; Block Exemption Communiqué No. 2005/4 for Vertical Agreements and • Guidelines on Cases Considered as Merger and Acquisition and Concerted Practices in the Motor Vehicle Sector. Restrictive agreements Concept of Control, enacted on 16 July 2013; and that do not benefit from the block exemption under the relevant commu- • Guidelines on General Principles of Exemption, enacted on 28 niqué or an individual exemption issued by the Board are caught by the November 2013. prohibition in article 4. The Turkish antitrust regime also condemns concerted practices, Substantive law and the Competition Authority easily shifts the burden of proof in 4 What is the substantive law on cartels in the jurisdiction? connection with concerted practice allegations through a mechanism called ‘the presumption of concerted practice’. Article 4 of the Competition Law is akin to and closely modelled on article 101(1) of the TFEU (formerly article 81(1) of the EC Treaty). It Joint ventures and strategic alliances prohibits all agreements between undertakings, decisions by asso- 5 To what extent are joint ventures and strategic alliances ciations of undertakings and concerted practices that have (or may potentially subject to the cartel laws? have) as their object or effect the prevention, restriction or distortion of competition within a Turkish product or services market or a part Under Turkish Competition Law, the competitive assessment of joint thereof. Article 4 does not bring a definition of ‘cartel’. Rather, it prohibits ventures falls between merger control and cartel regulation. Depending all forms of restrictive agreements, which would include any form of on the full-function character of a joint venture, it can be subject to cartel agreement. Similar to the TFEU, the Amendment Law introduced either merger control or a general antitrust assessment.

260 Cartel Regulation 2021 © Law Business Research 2020 ELIG Gürkaynak Attorneys-at-Law Turkey

If a joint venture is found to be a full-function joint venture, it will assume that an export cartel would fall outside of the Competition be subject to merger control regime under article 7 of the Competition Authority’s jurisdiction if and to the extent it does not produce an impact Law, if the applicable turnover thresholds are met. However, if the joint on Turkish markets. venture is considered to be non-full-function, it would be subject to an article 4 test to see if it has an anticompetitive purpose or effect, and Industry-specific provisions therefore would be subject to cartel regulation. 9 Are there any industry-specific infringements? Are there any industry-specific defences or exemptions? APPLICATION OF THE LAW AND JURISDICTIONAL REACH There are no industry-specific offences or defences. The Competition Application of the law Law applies to all industries, without exception. There are sector-specific 6 Does the law apply to individuals, corporations and other block exemption rules, but these do not define any industry-specific entities? offences or defences that do not exist in the Competition Law but detail slightly different rules for the block exemption regulations. One The Law on Protection of Competition No. 4054 of 13 December 1994 (the such regulation exists in the motor vehicle sector (Block Exemption Competition Law) applies to ‘undertakings’ and ‘associations of under- Communiqué No 2017/3 on Vertical Agreements in the Motor Vehicles takings’. An undertaking is defined as a single integrated economic unit Sector) (Communiqué No 2017/3)). Accordingly, in cases that concern capable of acting independently in the market to produce, market or the motor vehicle sector’s block exemption, both the defending under- sell goods and services. The Competition Law therefore applies to indi- taking and the Authority would consider the thresholds and rules viduals, corporations and other entities alike acting as an undertaking. specified within Communiqué No 2017/3. To the extent that they act as an undertaking within the meaning of Extraterritoriality the Competition Law, state-owned entities also fall within the scope of 7 Does the regime apply to conduct that takes place outside the application of article 4. jurisdiction (including indirect sales into the jurisdiction)? If Owing to the ‘presumption of concerted practice’, markets so, on what jurisdictional basis? for the supply of homogeneous products (eg, cement, bread yeast and ready-mixed concrete) have constantly been under investigation for Turkey is one of the ‘effect theory’ jurisdictions where what matters is concerted practices. Nevertheless, whether this track record (more than whether the cartel activity has produced effects on Turkish markets, 32 investigations in the cement and ready-mixed concrete markets in regardless of the nationality of the cartel members, where the cartel 21 years of enforcement history) leads to an industry-specific offence activity took place or whether the members have a subsidiary in Turkey. is debatable. The Board has refrained from declining jurisdiction over non-Turkish cartels or cartel members in the past, as long as there has been an Government-approved conduct effect on the Turkish markets (eg, The suppliers of rail freight forwarding 10 Is there a defence or exemption for state actions, services for block trains and cargo train services, 16 December 2015,15- government-approved activity or regulated conduct? 44/740-267; Güneş Ekspres/Condor, 27 October 2011, 11-54/1431-507; Imported Coal, 2 September 2010, 10-57/1141-430; Refrigerator There are no defences or exemptions for state-approved or regu- Compressor, 1 July 2009; 09-31/668‑156). It should be noted, however, lated actions. that the Board is yet to enforce monetary or other sanctions against There are sector-specific antitrust exemptions. The block exemp- firms located outside of Turkey that lacks a presence in Turkey, mostly tions applicable in the motor vehicle sector and in the insurance due to enforcement handicaps (such as difficulties of formal service or sector are notable examples. The Competition Law does not provide failure to identify a tax number). The specific circumstances surrounding any specific exceptions to government–sanctioned activities or regu- indirect sales are not tried under Turkish cartel rules. Article 2 of the lated conduct. Competition Law would support at least a convincing argument that However, there are examples where the Board taken an undertak- the Turkish cartel regime does not extend to indirect sales because the ing’s defence that it was acting in a state-approved or regulated manner cartel activity that takes place outside of Turkey does not in and of itself into account (eg, Paper Recycling, 8 July 2013, 13–42/538–238; Waste produce effects in Turkey. Accumulator, 4 October 2012, 12–48/1415–476; Pharmaceuticals, 2 The Board finds the underlying basis of its jurisdiction in article 2 March 2012, 12–09/290–91; Et–Balık Kurumu, 16 June 2011, 11–37/785– of the Competition Law, which captures all restrictive agreements, deci- 248; Türkiye Şöförler ve Otomobilciler Federasyonu, 3 March 1999, sions, transactions and practices to the extent they produce an effect on 99–12/91–33; Esgaz, 9 August 2012, 12–41/1171–384). a Turkish market, regardless of where the conduct takes place. INVESTIGATIONS Export cartels 8 Is there an exemption or defence for conduct that only affects Steps in an investigation customers or other parties outside the jurisdiction? 11 What are the typical steps in an investigation?

It is fair to say that export cartels do not fall within the scope of the The Board is entitled to launch an investigation into an alleged cartel Competition Authority’s jurisdiction, as per article 2 of the Competition activity ex officio or in response to a complaint. In the case of a complaint, Law. In Poultry Meat Producers (25 November 2009, 09–57/1393–362), the Board rejects the notice or complaint if it deems it not to be serious. the Authority launched an investigation into allegations that included, Any notice or complaint is deemed rejected if the Board remains silent among other things, an export cartel. The Board decided that export for 60 days. The Board conducts a pre-investigation if it finds the notice cartels could not sanctioned unless they affected the host country’s or complaint to be serious. At this preliminary stage, unless there is a markets. Although some other decisions (Paper Recycling, 8 July 2013, dawn raid, the undertakings concerned are not notified that they are 13–42/538–238) suggest that the Competition Authority might some- under investigation. Dawn raids (unannounced on-site inspections) and times be inclined to claim jurisdiction over export cartels, it is fair to other investigatory tools (eg, formal information request letters) are www.lexology.com/gtdt 261 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

used during this pre-investigation process. The preliminary report of Refusal to grant the staff of the Competition Authority access to busi- the Competition Authority experts will be submitted to the Board within ness premises may lead to the imposition of a fixed fine of 0.5 per cent 30 days after a pre-investigation decision is taken by the Board. The of the Turkish turnover generated in the financial year preceding the Board will then decide within 10 days whether to launch a formal inves- date of the fining decision (if this is not calculable, the Turkish turnover tigation. If the Board decides to initiate an investigation, it will send a generated in the financial year nearest to the date of the fining deci- notice to the undertakings concerned within 15 days. The investigation sion will be taken into account). It may also lead to the imposition of will be completed within six months. If deemed necessary, this period a fine of 0.05 per cent of the Turkish turnover generated in the finan- may be extended, once only, for an additional period of up to six months cial year preceding the date of the fining decision, for each day of the by the Board. violation (if this is not calculable, the Turkish turnover generated in the The investigated undertakings have 30 calendar days as of the financial year nearest to the date of the fining decision will be taken formal service of the notice to prepare and submit their first written into account). defences (first written defence). Subsequently, the main investigation The Competition Law provides vast authority to the Competition report is issued by the Competition Authority. Once the main investiga- Authority on dawn raids. Judicial authorisation is obtained by the Board tion report is served on the defendants, they have 30 calendar days to only if the subject undertaking refuses to allow the dawn raid. Other than respond, extendable for a further 30 days (second written defence). The that, the Competition Authority does not need to obtain judicial author- investigation committee will then have 15 days to prepare an opinion isation to use its powers. While the wording of the Law is such that concerning the second written defence. The defending parties will have employees can be compelled to give verbal testimony, case handlers another 30-day period to reply to the additional opinion (third written do allow a delay in giving an answer so long as there is a quick written defence). When the parties’ responses to the additional opinion are follow-up correspondence. Therefore, in practice, employees can avoid served on the Competition Authority, the investigation process will be providing answers on issues that are uncertain to them, provided that a completed (the written phase of investigation involving claim or defence written response is submitted within a mutually agreed time. Computer exchange will close with the submission of the third written defence). records are fully examined by the experts of the Competition Authority, An oral hearing may be held ex officio or upon request by the parties. including, but not limited, to deleted items. Oral hearings are held within at least 30 and at most 60 days following In addition to the above, the Amendment Law also includes an the completion of the investigation process under the provisions of explicit provision that during on-site inspections, the Authority can Communiqué No. 2010/2 on Oral Hearings Before the Board. The Board inspect and make copies of all information and documents in the compa- will render its final decision within 15 calendar days of the hearing if nies’ physical records and those in electronic storage and IT systems, an oral hearing is held, or within 30 calendar days of completion of the which the Authority already does in practice. This is also confirmed in investigation process if no oral hearing is held. the Amendment Proposal’s preamble as it indicates that the amend- The appeal must be brought within 60 calendar days of the ment serves ‘further’ clarification on the powers of the Authority that are reasoned decision being officially served. It usually takes around three particularly important for discovering cartels. Based on the Authority’s to eight months from the announcement of the final decision for the current practice, therefore, this does not constitute a novelty. Board to serve a reasoned decision on an appeal. Officials conducting an on-site investigation must be in possession of a of authorisation from the Board. The deed of authorisation Investigative powers of the authorities must specify the subject matter and purpose of the investigation. 12 What investigative powers do the authorities have? Is court The inspectors are not entitled to exercise their investigative powers approval required to invoke these powers? (copying records, recording statements by company staff, etc) in rela- tion to matters that do not fall within the scope of the investigation (that The Board may request all information it deems necessary from all is, that which is written on the deed of authorisation). public institutions and organisations, undertakings and trade associa- tions. Officials of these bodies, undertakings and trade associations are INTERNATIONAL COOPERATION obliged to provide the necessary information within the period fixed by the Board. Failure to comply with a decision ordering the production of Inter-agency cooperation information may lead to the imposition of a turnover-based fine of 0.1 per 13 Is there cooperation with authorities in other jurisdictions? cent of the turnover generated in the financial year preceding the date of If so, what is the legal basis for, and extent of, such the fining decision (if this is not calculable, the turnover generated in the cooperation? financial year nearest to the date of the fining decision will be taken into account). The minimum fine is 31,903 Turkish liras (Communiqué on the Article 43 of Decision No. 1/95 of the EC–Turkey Association Council Increase of the Lower Threshold for Administrative Fines Specified in (Decision No. 1/95) authorises the Competition Authority to notify and paragraph 1, article 16 of Act No. 4054 on the Protection of Competition request the European Commission’s Directorate-General for Competition (Communiqué No. 2020/1)). In cases where incorrect or incomplete to apply relevant measures if the Board believes that cartels organised information has been provided in response to a request for information, in the territory of the European Union adversely affect competition in the same penalty may be imposed. Turkey. The provision grants reciprocal rights and obligations to the Article 15 of the Competition Law also authorises the Board to parties (the EU and Turkey), and thus the European Commission has the conduct on-site investigations and dawn raids. Accordingly, the Board authority to request the Board to apply relevant measures to restore is entitled to: competition in relevant markets. • examine the books, paperwork and documents of undertakings and There are also a number of bilateral cooperation agreements trade associations, and, if necessary, make copies of the same; between the Competition Authority and the competition agencies in • request undertakings and trade associations to provide written or other jurisdictions (eg, Romania, Korea, Bulgaria, Portugal, Bosnia– verbal explanations on specific topics; and Herzegovina, Russia, Croatia and Mongolia) on cartel enforcement • conduct on-site investigations with regard to any asset of an matters. The Competition Authority also has close ties with the OECD, undertaking. United Nations Conference on Trade and Development, World Trade Organization, the International Competition Network and the World Bank.

262 Cartel Regulation 2021 © Law Business Research 2020 ELIG Gürkaynak Attorneys-at-Law Turkey

The research department of the Competition Authority makes of proof is very easily switched and it becomes incumbent upon the periodic consultations with relevant domestic and foreign institu- defendants to demonstrate that the parallelism in question is not based tions and organisations about the protection of competition in order to on concerted practice, but has economic and rational reasons behind it. assess their results, and submits its recommendations to the Board. Unlike in the EU, where the undisputed acceptance is that tacit As an example, a cooperation protocol was signed on 14 October 2009 collusion does not constitute a violation of competition, the Competition between the Turkish Competition Authority and the Turkish Public Law does not give weight to the doctrine known as ‘conscious paral- Procurement Authority in order to procure a healthy competition envi- lelism and plus factors’. In practice, the Board sometimes does not go to ronment with regard to public tenders by cooperating and sharing the trouble of seeking ‘plus factors’ along with conscious parallelism if information. Informal contacts do not constitute a legal basis for the naked parallel behaviour is established. Turkish Competition Authority’s actions. Recent indications in practice also suggest that the Competition Authority officials are increasingly inclined to adopt a broadening inter- Interplay between jurisdictions pretation of the definition of ‘cartel’. 14 Which jurisdictions have significant interplay with your jurisdiction in cross-border cases? If so, how does this affect Circumstantial evidence the investigation, prosecution and penalising of cartel activity 17 Can an infringement be established by using circumstantial in cross-border cases in your jurisdiction? evidence without direct evidence of the actual agreement?

It is fair to say that the interplay between jurisdictions does not, in The Board considers communication evidence and economic data that practice, materially affect the Board’s handling of cartel investigations, indicate coordination between competitors as circumstantial evidence. including cross-border cases. Principle of comity does not take part as Communication evidence, for instance, can prove that the possible an explicit provision in Turkish Competition law. A cartel’s conduct that parties to an agreement communicated with or met each other, yet was investigated elsewhere in the world can be prosecuted in Turkey if cannot demonstrate the actual content of such communication. If there it has had an effect on non-Turkish markets. is no direct evidence demonstrating the existence or content of a viola- tion, the Board might establish an infringement through circumstantial CARTEL PROCEEDINGS evidence by itself or along with direct evidence, especially in concerted practice cases. Decisions 15 How is a cartel proceeding adjudicated or determined? Appeal process 18 What is the appeal process? The Board can initiate an inspection about an undertaking or an asso- ciation of undertakings upon complaint or ex officio. Cartel matters As per Law No. 6352, which entered into force as of 5 July 2012, final are primarily adjudicated by the Board. Enforcement is supplemented decisions of the Board, including its decisions on interim measures with private lawsuits as well. Private suits against cartel members are and fines, can be submitted to judicial review before the administrative tried before regular courts. Owing to a treble damages clause allowing courts in Ankara by filing an appeal case within 60 days of receipt by litigants to obtain three times their loss as compensation, private the parties of the justified (reasoned) decision of the Board. Decisions antitrust litigations increasingly make their presence felt in the cartel of the Board are considered as administrative acts, and thus legal enforcement arena. Most courts wait for the decision of the Competition actions against them shall be pursued in accordance with the Turkish Authority and build their own rulings on that decision. Administrative Procedural Law. The judicial review comprises of both procedural and substantive reviews. Burden of proof As per article 27 of the Administrative Procedural Law, filing an 16 Which party has the burden of proof? What is the level of administrative action does not automatically stay the execution of proof required? the decision of the Board. However, at the request of the plaintiff the court, by providing its justifications, may decide on a stay of execu- The most important material issue specific to Turkey is the very low tion if executing the decision is likely to cause serious and irreparable standard of proof adopted by the Board. The participation of an under- damages and the decision is highly likely to be against the law (that is, taking in a cartel activity requires proof that there was such a cartel showing of a prima facie case). activity or, in the case of multilateral discussions or cooperation, The judicial review period before the Ankara administrative courts that the particular undertaking was a participant. With a broadening usually takes about 12 to 24 months. Decisions by the Ankara adminis- interpretation of the Competition Law, and especially of the ‘object or trative courts are, in turn, subject to appeal before the regional courts effect of which . . .’ branch, the Board has established an extremely low (appellate courts) and the High State Court. If the challenged decision standard of proof concerning cartel activity. The standard of proof is is annulled in full or in part, the administrative court remands it to the even lower as far as concerted practices are concerned; in practice, if Board for review and reconsideration. parallel behaviour is established, a concerted practice might readily be After the recent legislative changes, administrative litigation cases inferred and the undertakings concerned might be required to prove will now be subject to judicial review before the newly established that the parallel behaviour is not the result of a concerted practice. regional courts (appellate courts). The new legislation has created a The Competition Law brings a ‘presumption of concerted practice’, three-level appellate court system consisting of administrative courts, which enables the Board to engage in an article 4 enforcement in cases regional courts (appellate courts) and the High State Court. The regional where price changes in the market, supply-demand equilibrium or fields courts will go through the case file both on procedural and substantive of activity of enterprises bear a resemblance to those in the markets grounds and investigate the case file and make their decision considering where competition is obstructed, disrupted or restricted. Turkish anti- the merits of the case. The regional courts’ decisions will be considered trust precedents recognise that ‘conscious parallelism’ is rebuttable as final in nature. The decision of the regional court will be subject to the evidence of forbidden behaviour and constitutes sufficient ground to High State Court’s review in exceptional circumstances, which are set impose fines on the undertakings concerned. Therefore, the burden forth in article 46 of the Administrative Procedure Law. In this case, the www.lexology.com/gtdt 263 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

decision of the regional court will not be considered as a final decision. and legal consequences of every action that has been taken unlawfully In such a case, the High State Court may decide to uphold or reverse the and to take all other necessary measures in order to restore the level of regional courts’ decision. If the decision is reversed by the High State competition and status as before the infringement. Furthermore, such a Court, it will be remanded back to the deciding regional court, which restrictive agreement shall be deemed legally invalid and unenforceable will in turn issue a new decision which takes into account the High State with all its legal consequences. Similarly, the Competition Law author- Court’s decision. As the regional courts have recently been established, ises the Board to take interim measures until the final resolution on the there is not yet experience on how long does it take for a regional court matter in case there is a possibility of serious and irreparable damages. to finalise its review of a file. Accordingly, the Council of State’s review In 2020, the Board fined a number of undertakings for hindering period (for a regional court’s decision) within the new system should on-site inspections. In this respect, in its Groupe SEB İstanbul Decision also be tested before providing an estimated time period. The appeal (9 January; 20–03/31–14), Groupe SEB İstanbul was fined 0.05 per cent period before the High State Court usually takes about 24 to 36 months. of its turnover generated in 2018 for hindering an on-site inspection. Decisions of courts in private suits are appealable before the Supreme Similarly, the Board imposed a fine of 0.5 per cent upon Unilever for Court of Appeals. The appeal process in private suits is governed by the not granting access to Unilever’s email system for a search by using general procedural laws and usually lasts 24 to 30 months. ‘eDiscovery’ for approximately eight hours during the on-site inspection. An appeal process is typically initiated by the infringing party in (Unilever Decision, 7 November 2019, 19–38/584–250) cases where the Board finds a violation, or by complainants if there is In 2019, the total amount of fines imposed on undertakings that no finding of a violation. The Competition Authority does have the right obstructed on-site inspection was 38,116,076.71 Turkish lira. to challenge a court decision by initiating a judicial review process if a In 2017, the Board has levied administrative monetary fines within decision of the Board is overturned by the deciding court. an investigation launched against 13 financial institutions, including local and international banks, active in Turkey’s corporate and commer- SANCTIONS cial banking markets (28 November 2017, 17–39/636–276). The main allegations concerned the exchange of competitively sensitive informa- Criminal sanctions tion on loan conditions (such as interest and maturities) regarding loan 19 What, if any, criminal sanctions are there for cartel activity? agreements and other financial transactions. After an in-depth investi- gation lasting 19 months, the Board unanimously concluded that BTMU The sanctions that can be imposed under the Law on Protection of (which has since been renamed MUFG Bank), ING and Royal Bank of Competition No. 4054 of 13 December 1994 (the Competition Law) Scotland (which became a direct subsidiary of NatWest Holdings in are administrative in nature. Therefore, the Competition Law leads to 2019) violated article 4 of the Competition Law. The Board imposed administrative fines (and civil liability), but no criminal sanctions. Cartel administrative monetary fines on ING and RBS in the amount of 21.1 conduct will not result in imprisonment against individuals implicated. million Turkish liras and 664,000 Turkish liras, respectively, based on That said, there have been cases where the matter had to be referred their annual turnovers in the 2016 financial year. However, the Board to a public prosecutor before or after the competition law investigation resolved that it would not impose an administrative monetary fine on was complete. On that note, bid rigging activity may be criminally pros- BTMU, pursuant to the bank’s leniency application that granted it full ecutable under section 235 et seq of the Turkish Criminal Code. Illegal immunity, and relieved the remaining 10 undertakings from paying price manipulation (manipulation through disinformation or other fraud- administrative monetary fines. ulent means) may also be punished by up to two years of imprisonment Another decision in 2017 concerned allegations that 10 undertak- and a judicial fine under section 237 of the Turkish Criminal Code. ings that were active in producing ready-mix concrete in Turkey’s İzmir region planned to artificial increase the prices of ready-mix concrete Civil and administrative sanctions by entering into an anticompetitive agreement or concerted practice 20 What civil or administrative sanctions are there for cartel (22 August 2017, 17–27/452–194). The Board took into account that activity? economic evidence showed the relevant undertaking was not involved in an anticompetitive agreement or concerted practices, and it is under- In the case of a proven cartel activity, the undertakings concerned will stood that the Board took the defendants’ view that it was implausible be separately subject to fines of up to 10 per cent of their Turkish turn- that the reached an arrangement within the alleged duration of the over generated in the financial year preceding the date of the fining anticompetitive agreement, which was three months. The Board’s deci- decision (if this is not calculable, the Turkish turnover generated in the sion constitutes a good example that the undertakings subject to an financial year nearest to the date of the fining decision will be taken into investigation based on allegations of anticompetitive agreements or account). Employees or members of the executive bodies of the under- concerted practice can defend themselves using economic and legal takings or association of undertakings that had a determining effect on evidence, even when they are under the presumption of having engaged the creation of the violation may also be fined up to 5 per cent of the in a concerted practice of article 4 of the Competition Law, and so shows fine imposed on the undertaking or association of undertakings. After the importance of economic evidence. the recent amendments, the new version of the Competition Law makes reference to article 17 of the Law on Minor Offences to require the Board Civil actions to take mitigating and aggravating factors into account (eg, the level of Numbers of civil actions are still rare but are increasing. The majority fault and amount of possible damage in the relevant market, the market of private lawsuits in Turkish antitrust enforcement are based on power of the undertakings within the relevant market, the duration and allegations of refusal to supply and price manipulation. Civil damage recurrence of the infringement, the cooperation or driving role of the claims are usually settled among the involved parties prior to a court undertakings in the infringement, and the financial power of the under- rendering judgment. takings or the compliance with their commitments) in determining the Similar to US antitrust enforcement, the most distinctive feature magnitude of the monetary fine. of Turkish competition law is that it provides for civil lawsuits for treble In addition to the monetary sanction, the Competition Board of the damages, and so supplements administrative enforcement with private Competition Authority (the Board) is authorised to take all necessary lawsuits. Articles 57 et seq of the Competition Law entitle any legal or measures to terminate the restrictive agreement, to remove all de facto real person injured in their business or property by reason of anything

264 Cartel Regulation 2021 © Law Business Research 2020 ELIG Gürkaynak Attorneys-at-Law Turkey forbidden in the antitrust laws, to sue the violators for three times their Mitigating factors are regulated under article 7 of the Regulation damages, plus litigation costs and attorney fees. The case must be on Fines in a non-exhaustive manner (ie, the Board has flexibility in brought before the competent general civil court. In practice, courts do deciding what constitutes mitigating factors in each specific case). not usually engage in an analysis as to whether there is a condemnable In this regard, the base fine may be reduced by 25 per cent to 60 anticompetitive agreement or concerted practice, and wait for the Board per cent if: to render its opinion on the matter, therefore treating the issue as a • the concerned undertaking, or association of undertakings: pre-judicial question. As courts usually wait for the Board’s decision, • provided assistance to the investigation beyond the fulfilment the court’s decision can be obtained in a shorter period as compared to of their legal obligations; regular full processes in follow-on actions. • provided evidence of public authorities encouraging, or other undertakings coercing, other undertakings to take part in the Guidelines for sanction levels violation; 21 Do fining or sentencing principles or guidelines exist? If yes, • made voluntary payments of damages to those harmed; are they binding on the adjudicator? If no, how are penalty • voluntarily terminated other violations; or levels normally established? What are the main aggravating • the violating practices formed a very small part of the undertak- and mitigating factors that are considered? ings’ business, in relation to its annual gross revenue.

After the recent amendments, the new version of the Competition Law The Regulation on Fines also applies to managers or employees who makes reference to article 17 of the Law on Minor Offences to require held ringleader roles within the violation (eg, those participating in the Board to take into consideration factors such as the level of fault cartel meetings made decisions that would involve the company in and amount of possible damage in the relevant market, the market cartel activity), and also provides for certain reductions in their favour power of the undertakings within the relevant market, the duration when there are mitigating factors to the violation or the undertaking has and recurrence of the infringement, the cooperation or driving role provided assistance during the course of the investigation. of the undertakings in the infringement, the financial power of the The Regulation on Fines is binding on the Competition Authority. undertakings, compliance with their commitments, etc, in determining the magnitude of the monetary fine. In line with this, the Regulation Compliance programmes on Monetary Fines for Restrictive Agreements, Concerted Practices, 22 Are sanctions reduced if the organisation had a compliance Decisions and Abuse of Dominance (the Regulation on Fines) sets out programme in place at the time of the infringement? detailed guidelines as to the calculation of monetary fines applicable in the case of an antitrust violation. The Regulation on Fines applies to Article 7 of the Regulation on Fines follows that the Board may reduce both cartel activity and abuse of dominance, but illegal concentrations the base fine at a rate of 25 to 60 per cent if the undertakings or associa- are not covered by the Regulation on Fines. tion of undertakings concerned prove certain facts such as provision The Regulation on Fines states that fines are calculated by deter- of assistance to the examination beyond fulfilment of legal obligations, mining its base level. In the case of cartels, each undertaking’s fine is existence of encouragement by public authorities or coercion by other set at between 2 per cent and 4 per cent of its turnover in the financial undertakings in the violation, voluntary payment of damages to those year preceding the date of the fining decision; if this is not calculable, the harmed, termination of violations and occupation of a very small share turnover for the financial year nearest the date of the decision is used. by practices subject to the violation within annual gross revenues. Then aggravating and mitigating factors are factored in. Such factors Mitigating factors are regulated under article 7 of the Regulation on are set forth in the Regulation on Fines. Fines in a non-exhaustive manner, in such a way that the base fine may Article 5/3, states that the amount of the fine may be increased by be reduced by 25 per cent to 60 per cent if: 50 per cent if a violation lasted between one and five years, and by 100 • the concerned undertaking, or association of undertakings: per cent if it lasted for more than five years, and article 6, allows for the • provided assistance to the investigation beyond the fulfilment base fine to be increased by 50 per cent to 100 per cent for each repeti- of their legal obligations; tion of the violation and also further increased by one fold if the cartel is • provided evidence of public authorities encouraging, or other maintained after the notification of the investigation decision. undertakings coercing, other undertakings to take part in the Aggravating factors are defined under article 6 in a non-exhaustive violation; manner and accordingly, the base fine may also be increased by: • made voluntary payments of damages to those harmed; or • 50 per cent to 100 per cent, if an undertaking’s commitments made • voluntarily terminated other violations; or regarding the elimination of competition problems raised within • the violating practices formed a very small part of the under­ the scope of article 4 of the Competition Law have not been met; takings’ business, in relation to its annual gross revenue. • up to 50 per cent, if an undertaking does not provide assistance with an investigation; and Regarding mitigating factors, there have been several cases where the • up to 25 per cent in cases such as coercing other undertakings into Board considered the existence of a compliance programme as an indi- the violation. cation of good faith (Unilever, 12–42/1258–410; Efes, 12–38/1084–343). However, recent indications suggest that the Board is disinclined to The provisioned increase for not providing assistance with the investi- consider a compliance programme to be a mitigating factor. Although gation differs from the administrative monetary fine set forth in article they are welcome, the mere existence of a compliance programme is 16 of the Competition Law for undertakings that obstruct the investiga- not enough to counter the finding of an infringement or even to discuss tion process by way of providing misleading information or documents lower fines (Frito Lay, 13–49/711–300; Industrial Gas, 13–49/710–297). or not providing any information or documents at all, or preventing In Industrial Gas, the investigated party argued that it had immedi- or obstructing an on-site inspection. In such cases, the Board would ately initiated a competition law compliance programme as soon as impose a separate administrative monetary fine, for each instance of it received the complaint letters, which were originally submitted to obstruction, which is separate from the final administrative monetary the authority. However, the Board did not take this into account as fine that is imposed at the end of the investigation process. a mitigating factor. On the other hand, the Board’s Mey İçki decision www.lexology.com/gtdt 265 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

(16 February 2017, 17–07/84–34) might be signalling a change in its PRIVATE RIGHTS OF ACTION perception of compliance programmes. The Board applied a 25 per cent reduction on the grounds that Mey İçki (a producer and distributors of Private damage claims spirits) ensured compliance with competition law by taking into account 26 Are private damage claims available for direct and indirect the competition law sensitivities highlighted by the Board before the purchasers? Do purchasers that acquired the affected Board issued its final decision. Similarly, in its Consumer Electronics product from non-cartel members also have the ability to decision (7 November 2016, 16–37/628–279), the Board applied a 60 bring claims based on alleged parallel increases in the per cent reduction to an undertaking due to its compliance efforts, prices they paid (‘umbrella purchaser claims’)? What level of since the undertaking amended its contracts before the final decision damages and cost awards can be recovered? of the Board. One of the most distinctive features of the Turkish competition law Director disqualification regime is that it provides for treble damages in lawsuits. Article 57 et 23 Are individuals involved in cartel activity subject to orders seq of the Law on Protection of Competition No. 4054 of 13 December prohibiting them from serving as corporate directors or 1994 (the Competition Law) entitles any person injured in his or her officers? business or property by reason of anything forbidden by the antitrust laws to sue the violators for three times their damages plus litigation The sanctions specified in terms of undertakings themselves may apply costs and attorney fees. The Turkish obligation law regulates the joint to individuals if they engage in business activities as an undertaking. creditors and prevents the debtor from the double recovery. All the Similarly, sanctions for cartel activity may also apply to individuals acting creditors shall pursue a claim against the debtor and in that case, a as an infringing entity’s employees or board or executive committee debtor shall pay on the amount of their shares. However, in the event member if such individuals had a determining effect on the creation of that the debtor makes a payment to only one creditor as a whole, this the violation. Apart from these, there are no other sanctions specific for creditor shall be liable to the others and the other creditors. individuals. On that note, bid rigging activity may be criminally prosecut- Antitrust private lawsuits are rare but increasing in practice. The able under sections 235 et seq of the Turkish Criminal Code. Illegal price majority of private lawsuits in Turkish antitrust enforcement rely on manipulation (ie, manipulation through disinformation or other fraudu- refusal-to-supply allegations. Civil damage claims have usually been lent means) may also be punished by up to two years’ imprisonment settled by the parties involved prior to the court rendering its judgment. and a civil monetary fine under section 237 of the Turkish Criminal Code. Indirect purchaser claims have not yet been tested before the courts. However, there is no regulation that prevents potential umbrella Debarment purchaser claims as well since the article 58 of the Competition Law 24 Is debarment from government procurement procedures which focuses on the existence of a damage by stating that: automatic, available as a discretionary sanction, or not available in response to cartel infringements? Those who suffer as a result of the prevention, distortion or restriction of competition, may claim as a damage the difference Bid riggers in government procurement tenders may face blacklisting between the cost they paid and the cost they would have paid if (ie, debarment from government tenders) for up to two years under competition had not been limited. article 58 of the Public Tenders Law No. 4734. The blacklisting is decided by the relevant ministry implementing the tender contract or by the Class actions relevant ministry that the contracting authority is subordinate to or is 27 Are class actions possible? If so, what is the process for such associated with. It is a duty, not an option, for administrative authori- cases? If not, what is the scope for representative or group ties to apply blacklisting in cases of bid rigging in government tenders. actions and what is the process for such cases? Blacklisting is only applicable to bid rigging. It is not available in cases of other forms of cartel infringement. Turkish procedural law does not allow for class actions or procedures. Class certification requests would not be granted by Turkish courts. Parallel proceedings While article 73 of Law No. 6502 on the Protection of Consumers allows 25 Where possible sanctions for cartel activity include criminal class actions by consumer organisations, these actions are limited to and civil or administrative penalties, can they be pursued violations of Law No. 6502, and do not extend to cover antitrust infringe- in respect of the same conduct? If not, when and how is the ments. Similarly, article 58 of the Turkish Commercial Code enables choice of which sanction to pursue made? trade associations to take class actions against unfair competition behaviour, but this has no reasonable relevance to private suits under Yes. The same conduct can trigger administrative or civil sanctions (or article 57 et seq of the Competition Law. criminal sanctions in the case of bid rigging or other criminally pros- Turkish procedural law allows group actions under article 113 of ecutable conduct) at the same time. the Turkish Procedure Law No. 6100. Associations and other legal enti- ties may initiate a group action to ‘protect the interest of their members’, ‘to determine their members’ rights’ and ‘to remove the illegal situa- tion or prevent any future breach’. Group actions do not cover actions for damages. A group action can be brought before a court as one single lawsuit only. The verdict shall encompass all individuals within the group.

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COOPERATING PARTIES Going in second 30 How is the second cooperating party treated? Is there an Immunity ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, 28 Is there an immunity programme? If so, what are the basic how does it operate? elements of the programme? What is the importance of being ‘first in’ to cooperate? The second firm to file an appropriately prepared application would receive a fine reduction of between 33 per cent and 50 per cent. The Regulation on Active Cooperation for Discovery of Cartels (Regulation Employees or managers of the second applicant that actively cooperate on Leniency) was enacted on 15 February 2009. The Regulation on with the Competition Authority would benefit from a reduction of between Leniency sets out the main principles of immunity and leniency mecha- 33 and 100 per cent. nisms. In parallel to the Regulation on Leniency, the Board published the The third applicant would receive a 25 per cent to 33 per cent Guidelines on Explanation of the Regulation on Active Cooperation for reduction. Employees or managers of the third applicant that actively Discovery of Cartels on April 2013. cooperate with the Competition Authority would benefit from a reduction The leniency programme is only applicable for cartel cases. It of 25 per cent up to 100 per cent. does not apply to other forms of antitrust infringement. Section 3 of the Subsequent applicants would receive a 16 per cent to 25 per cent Regulation on Leniency provides for a definition of cartel that encom- reduction. Employees or managers of subsequent applicants would passes price-fixing, customer, supplier or market sharing, restricting benefit from a reduction of 16 per cent up to 100 per cent. output or placing quotas and bid rigging. Amnesty Plus is regulated under article 7 of the Regulation on A cartel member may apply for leniency until the investigation Fines. According to article 7, the fines imposed on an undertaking that report is officially served on it. Depending on the timing of the applica- cannot benefit from immunity provided by the Regulation on Leniency tion, the applicant may benefit from full immunity or fine reduction. will be decreased by 25 per cent if it provides the information and docu- The first one to file an appropriately prepared application for leni- ments specified in article 6 of the Regulation on Leniency prior to the ency before the investigation report is officially served may benefit from Board’s decision of preliminary investigation in relation to another cartel. full immunity. Employees or managers of the first applicant can also benefit from the full immunity granted to the applicant firm. However, Approaching the authorities there are several conditions an applicant must meet to receive full 31 Are there deadlines for initiating or completing an application immunity from all charges. One of them is not to be the coercer of the for immunity or partial leniency? Are markers available and reported cartel. If this is the case (ie, if the applicant has forced the other what are the time limits and conditions applicable to them? cartel members to participate in the cartel), the applicant firm and its employees may only receive a reduction of between 33 per cent and 100 A cartel member may apply for leniency until the investigation report is per cent. The other conditions are as follows: officially served. Although the Regulation on Leniency does not provide • the applicant shall submit information and evidence in respect of detailed principles on the ‘marker system’, the Competition Authority the alleged cartel, including the products affected, the duration can grant a grace period to applicants to submit the necessary infor- of the cartel, the names of the undertakings party to the cartel, mation and evidence. For the applicant to be eligible for a grace period, specific dates, locations and participants of cartel meetings; it must provide minimum information concerning the affected products, • the applicant shall not conceal or destroy information or evidence duration of the cartel and names of the parties. A document (showing related to the alleged cartel; the date and time of the application and request for time to prepare the • the applicant shall end its involvement in the alleged cartel except requested information and evidence) will be given to the applicant by the when otherwise is requested by the assigned unit on the ground assigned unit. that detecting the cartel would be complicated; Leniency applications submitted after the official service of the • the applicant shall keep the application confidential until the investigation report would not benefit from conditional immunity. Still, end of the investigation, unless otherwise is requested by the such applications may benefit from fine reductions. assigned unit; and • the applicant shall maintain active cooperation until the Board Cooperation takes the final decision after the investigation is completed. 32 What is the nature, level and timing of cooperation that is required or expected from an immunity applicant? Is there any Subsequent cooperating parties difference in the requirements or expectations for subsequent 29 Is there a formal programme providing partial leniency for cooperating parties that are seeking partial leniency? parties that cooperate after an immunity application has been made? If so, what are the basic elements of the programme? An applicant must submit: If not, to what extent can subsequent cooperating parties • information on the products affected by the cartel; expect to receive favourable treatment? • information on the duration of the cartel; • names of the cartelists; The Regulation on Leniency provides for the possibility of a reduction • dates, locations and participants of the cartel meetings; and of the fine for ‘second-in’ and subsequent leniency applicants. Also, the • other information or documents about the cartel activity. Competition Authority may consider the parties’ active cooperation after the immunity application as a mitigating factor as per the provisions of The required information may be submitted verbally. Markers are also Regulation on Fines. available. Admission of actual price effect is not a required element of leniency application. The applicant must avoid concealing or destroying the information or documents concerning the cartel activity. Unless the Leniency Division decides otherwise, the applicant must stop taking part in the cartel. Unless the Leniency Division instructs otherwise, the application must be kept confidential until the investigation report has www.lexology.com/gtdt 267 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

been served. The applicant must continue to actively cooperate with well. While the Board can also evaluate the information or documents the Competition Authority until the final decision on the case has been ex officio, the general rule is that information or documents that are not rendered. The applicant must also convey any new documents to the requested to be treated as confidential are accepted as not confidential. Authority as soon as they are discovered, cooperate with the Authority on Undertakings must request, in writing, confidentiality from the Board additional information requests, and avoid statements contradictory to and justify the confidential nature of the information or documents that the documents submitted as part of the leniency application. they are requesting be treated as commercial secrets. Non-confidential These ground rules apply to subsequent cooperating parties as well. information may become public through the reasoned decision, which Indications in practice show that the Authority was, until recently, is typically announced within three to four months after the Board has inclined to adopt an extremely high standard regarding what constitutes decided on the case. ‘necessary documents and information for a successful leniency applica- tion’ and the ‘minimum set of documents that a company is required to Settlements submit’. In 3M (27 September 2012; 12–46/1409–461), the investigation 34 Does the investigating or prosecuting authority have the team recommended that the Board revoke the applicant’s full immunity ability to enter into a plea bargain, settlement, deferred on the grounds that the applicant did not provide all of the documents prosecution agreement (or non-prosecution agreement) or that could be discovered during a dawn raid. Unfortunately, the reasoned other binding resolution with a party to resolve liability and decision did not go into the details of the matter, since the case was penalty for alleged cartel activity? What, if any, judicial or closed without a finding of violation. This approach arguably sets an other oversight applies to such settlements? almost impossible standard for ‘cooperation’ in the context of the leni- ency programme that very few companies will be able to meet. The trend The Amendment Law introduces two new mechanisms that are inspired towards adopting an extremely broadening interpretation of the concepts by the EU law and aim to enable the Board to end investigations without of ‘coercion’ and ‘the Authority’s already being in possession of docu- going through the entire pre-investigation and investigation procedures. ments that prove a violation at the time of the leniency application’ are The first mechanism is the commitment procedure. It will allow the all alarming signs of this new trend. undertakings or association of undertakings to voluntarily offer commit- In 2015, the Board slightly eased the tensions and handed a new ments during a preliminary investigation or full-fledged investigation to decision that could beckon a new era for the Turkish leniency programme. eliminate the Authority’s competitive concerns in terms of articles 4 and On 30 March 2015, the Board’s reasoned decision of an investigation of 6 of the Law on Protection of Competition No. 4054 of 13 December 1994 fresh yeast producers was released (14–42/783–346). The decision was (the Competition Law), prohibiting restrictive agreements and abuse of the first of its kind, where the Board granted full immunity, based on dominance. Depending on the sufficiency and the timing of the commit- article 4/2 of the Regulation on Active Cooperation for Detecting Cartels. ments, the Board can now decide to not launch a full-fledged investigation This immunity was granted to a submission made after the initiation of following the preliminary investigation or to end an on-going investiga- a preliminary investigation and dawn raids were executed. It served as tion without completing the entire investigation procedure. However, a landmark case, in that it was the first example of the Board granting commitments will not be accepted for violations such as price-fixing immunity after dawn raids. The Board justified this unprecedented between competitors, territory or customer sharing or the restriction action by claiming that substantive evidence and added value was of supply. The Board will provide the details of these new procedures brought in through the leniency application. In parallel, in the Mechanical through secondary legislation. Additionally, the Board may reopen an decision (14 December 2017, 17-41/640–279), the Board investigation in the following cases: accepted one undertakings’ leniency application during the course of the • there is a substantial change in any aspect of the basis of the decision; preliminary investigation. The leniency applicant received full immunity • the relevant undertakings’ non–compliance with the from fines. Recently, in its decision regarding undertakings active in the commitments; and Ro–Ro transportation sector (18 April 2019, 19–16/229–101), the Board • there is a realisation that the decision was decided on deficient, decided that the administrative fine for an undertaking that applied for incorrect or fallacious information provided by the parties. leniency during the investigation should be halved if the information it provides significantly contributed to the investigation. The Board further Second, the amendment to the Competition Law published in Official noted that relevant contributions included providing evidence that the Gazette on 23 June 2020, No. 31165 (the Amendment Law) also introduced violation’s starting point was earlier than what was detected during the a settlement procedure. As the relevant provision is added to article 43 on-site inspection, and evidence illustrating that price information was concerning investigations of anticompetitive conduct in general, and that exchanged by the violating undertakings and further details on how the Amendment Law does not limit the settlement option to only cartels, it the price exchange was conducted. The case is therefore expected to appears that this new procedure will also be applicable to ‘other infringe- result in an increase in number of leniency applications in Turkey in the ments’ under article 4 and abuse of dominance cases under article 6. near future. The new law will enable the Board, ex officio or upon a party’s request, to initiate a settlement procedure. Unlike the commitment Confidentiality procedure, a settlement can only be offered in full-fledged investigations. 33 What confidentiality protection is afforded to the immunity In this respect, parties that admit an infringement can apply for the settle- applicant? Is the same level of confidentiality protection ment procedure until the official service of the investigation report. The applicable to subsequent cooperating parties? What Board will set a deadline for the submission of the settlement letter and information will become public during the proceedings and if settled, the investigation will be closed with a final decision including when? the finding of a violation and administrative monetary fine. If the investi- gation ends with a settlement, the Board can reduce the administrative According to the principles set forth under the Regulation on Leniency, monetary fine by up to 25 per cent. Other procedures and principles the applicant (an undertaking or the employees or managers of an regarding settlement will be determined by the Board’s secondary legis- undertaking) must keep the application confidential until the end of the lation. That said, technically both commitments and settlement could be investigation, unless otherwise requested by the assigned unit. The same offered in the on-going proceedings as the Amendment Law is effective level of confidentiality is applicable to subsequent cooperating parties as as of 24 June 2020.

268 Cartel Regulation 2021 © Law Business Research 2020 ELIG Gürkaynak Attorneys-at-Law Turkey

Corporate defendant and employees Multiple corporate defendants 35 When immunity or partial leniency is granted to a corporate 39 May counsel represent multiple corporate defendants? Does defendant, how will its current and former employees be it depend on whether they are affiliated? treated? If there are no conflicts of interest, and all the related parties consent to The current employees of a cartelist entity also benefit from the same such representation, attorneys-at-law (members of a Turkish bar asso- level of leniency or immunity that is granted to the entity. There are no ciation qualified to practise law in Turkey) can and do represent multiple precedents about the status of former employees as yet. corporate defendants, even if they are not affiliated. Persons who are Apart from this, according to the Regulation on Leniency a manager not attorneys sometimes also undertake representations, but they are or employee of a cartelist may also apply for leniency until the inves- not bound by the same ethics codes binding attorneys in Turkey. tigation report is officially served. Such an application would be independent from applications by the cartel member itself, if there are Payment of penalties and legal costs any. Depending on the application order, there may be total immunity 40 May a corporation pay the legal penalties imposed on its from, or reduction of, a fine for such manager or employee. The reduc- employees and their legal costs? tion rates and conditions for immunity or reduction are the same as those designated for the cartelists. Yes. It is advisable to seek separate tax or bookkeeping advice before the corporation pays the legal costs or penalties imposed on its employee. Dealing with the enforcement agency 36 What are the practical steps for an immunity applicant Taxes or subsequent cooperating party in dealing with the 41 Are fines or other penalties tax-deductible? Are private enforcement agency? damages payments tax-deductible?

Since active cooperation is required from all applicant cartel members Pursuant to article 11 of the Corporate Tax Law No. 5520, any adminis- in order to maintain the leniency or immunity granted by the Board, trative monetary fine is not considered as tax-deductible. Depending on extra effort should be spent to keep the Board informed to the maximum the specific circumstances, losses, damages and indemnities paid based possible extent regarding the cartel that is subject to investigation. upon judicial decisions may or may not be tax-deductible. This requires a case-by-case analysis and it is advisable to seek separate tax or book- DEFENDING A CASE keeping advice in each case. There is a reduction mechanism for the administrative monetary Disclosure fines. The relevant legislation on payment of administrative monetary 37 What information or evidence is disclosed to a defendant by fines allows the undertakings to discharge from liability by paying 75 per the enforcement authorities? cent of the fine, provided that the payment is made before any appeal. The payment of such amount is without prejudice to a later appeal. The The right of access to the file has two legal bases in the Turkish compe- time frame in which to pay the 75 per cent portion terminates on the tition law regime: Law No. 4982 and Communiqué No. 2010/3 on the 30th calendar day from the service of the full reasoned decision. Regulation of Right to Access to File and Protection of Commercial Secrets (Communiqué No. 2010/3). Article 5/1 of Communiqué No. International double jeopardy 2010/3 provides that the right of access to the case file will be granted 42 Do the sanctions imposed on corporations or individuals take upon the written requests of the parties within due period during the into account any penalties imposed in other jurisdictions? In investigations. The right to access the file can be exercised on written private damage claims, is overlapping liability for damages in request at any time until the end of the period for submitting the last other jurisdictions taken into account? written statement. This right can only be used once, so long as no new evidence has been obtained within the scope of the investigation. On No. The Turkish Competition Authority would not take into account the other hand, Law No. 4982 does not have such a restriction in terms penalties imposed in other jurisdictions. The specific circumstances of timing or scope. Access to the case file enables the applicant to gain surrounding indirect sales are not tried under Turkish cartel rules. access to information and documents in the case file that do not qualify Overlapping liability for damages in other jurisdictions is not taken as either internal documents of the Competition Authority or trade into account. secrets of other firms or trade associations. Law No. 4982 provides for similar limitations. Getting the fine down 43 What is the optimal way in which to get the fine down? Representing employees 38 May counsel represent employees under investigation in Aside from the recently introduced leniency programme, article 9 of addition to the corporation that employs them? When should the Law on Protection of Competition No. 4054 of 13 December 1994 a present or past employee be advised to obtain independent (the Competition Law), which generally entitles Competition Board of legal advice or representation? the Competition Authority (the Board) to order structural or behavioural remedies to restore the competition as before the infringement, some- So long as there are no conflicts of interest, Turkish law does not prevent times operates as a conduit through which infringement allegations are counsel from representing both a undertaking under investigation settled before a full-blown investigation is launched. This can only be and its employees. That said, employees are hardly ever investigated established through a very diligent review of the relevant implicated separately, and there are no criminal sanctions against employees for businesses to identify all the problems, and adequate professional antitrust infringements. coaching in eliminating all competition law issues and risks. In cases where the infringement was too far advanced for it to be subject to only an article 9 warning, the Board at least found a mitigating factor in that www.lexology.com/gtdt 269 © Law Business Research 2020 Turkey ELIG Gürkaynak Attorneys-at-Law

the entity immediately took measures to cease any wrongdoing and if possible to remedy the situation. Following amendments in 2008, the new version of Competition Law makes reference to article 17 of the Law on Minor Offences to require the Competition Board, when determining the magnitude of a monetary fine, to take into consideration factors such as: • the level of fault and amount of possible damage in the rele- vant market; • the market power of the undertakings within the relevant market; Gönenç Gürkaynak [email protected] • the duration and recurrence of the infringement; • the cooperation or driving role of the undertakings in the K Korhan Yıldırım infringement; and [email protected] • the financial power of the undertakings; and compliance with commitments. Çitlenbik Sokak No. 12 Yıldız Mahallesi Beşiktaş There have been cases where the Board considered the existence of 34349 Istanbul a compliance programme as an indication of good faith (Unilever, Turkey 12-42/1258-410; Efes, 12-38/1084-343). However, recent indica- Tel: +90 212 327 1724 tions suggest that the Board is disinclined to consider a compliance Fax: +90 212 327 1725 programme to be a mitigating factor. Although they are welcome, the www.elig.com mere existence of a compliance programme is not enough to counter the finding of an infringement or even to discuss lower fines (Frito Lay, 13–49/711–300; Industrial Gas, 13–49/710–297). In the Board’s Industrial Gas decision, the investigated party argued that it had imme- In a full-fledged investigation initiated against 16 freelance mechan- diately initiated a competition law compliance programme as soon as ical engineers on the allegation of forming a profit-sharing cartel, the it received the complaint letters, which were originally submitted to Board concluded that 14 of the freelance mechanical engineers were the authority. However, the Board did not take this into account as a engaged in a profit-sharing cartel and thus violated article 4 of the mitigating factor. On the other hand, the Board’s Mey İçki decision (16 Competition Law. Having said that, the leniency applicant received full February 2017, 17-07/84-34) might be signalling a change in the Board’s immunity from fines, while also relieving one of the freelance mechan- perception of compliance programmes. The Board decided to apply a 25 ical engineers from an administrative monetary fine (14 December 2017, per cent reduction on the grounds that Mey İçki ensured compliance with 17–41/640–279). competition law by taking into account the competition law sensitivities Finally, the Board has levied administrative monetary fines highlighted by the Board even before the final decision of the Board. following an investigation launched against five undertakings and one Similarly, in Consumer Electronics (7 November 2016, 16–37/628–279), association of the undertakings active in cabotage Ro–Ro transportation the Board applied a 60 per cent reduction to an undertaking because lines in Turkey (18 April 2019, 19–16/229–101). The Board concluded of its compliance efforts, since the undertaking amended its contracts that Tramola Gemi İşletmeciliği ve Ticaret AŞ (Tramola), Kale Nakliyat before the final decision of the Board. Seyahat ve Turizm AŞ (Kale Nakliyat), İstanbullines Denizcilik Yatırım AŞ (İstanbullines), İstanbul Deniz Nakliyat Gıda İnşaat Sanayi Ticaret UPDATE AND TRENDS Ltd Şti (İDN) and İstanbul Deniz Otobüsleri Sanayi ve Ticaret AŞ (İDO) violated article 4 of the Competition Law by way of collectively deter- Recent cases mining prices. 44 What were the key cases, judgments and other developments The Board imposed the following administrative monetary fines: of the past year? • 4 per cent of annual gross income on Tramola and İstanbullines; • 0.1 per cent of annual gross income on İstanbullines, for submitting During the course of the year in review, there has not been any significant incomplete information to the Authority; cartel decision where the Competition Board of the Competition Authority • 0.8 per cent of annual gross income on İDN and İDO; and (the Board) imposed significant administrative monetary fines. On the • 1.6 per cent of annual gross income on Kale Nakliyat, as the Board contrary, there is a decline in the number of cartel cases as well as the did not grant full immunity to the leniency applicant. number of investigations with monetary fines. According to the annual report of the Turkish Competition Authority for 2019, the Board decided The total amount of the fines imposed to all of the undertakings was on 312 cases and 69 of them are related to competition law violations. 7,404,850.77 Turkish liras. Twenty–nine out of 69 are related to article 4 or 6 of the Competition Law. In a preliminary investigation initiated against çiğ köfte (a traditional Regime reviews and modifications version of steak tartar) producers operating in Gaziantep province of 45 Are there any ongoing or anticipated reviews or proposed Turkey, the Board has noticed the price-fixing agreements regarding the changes to the legal framework, the immunity/leniency sale price and conditions of çiğ köfte concluded between undertakings programmes or other elements of the regime? and acknowledged the presence of an agreement restricting competition in the relevant product market (10 January 2019, 19–03/13–5). Having On 16 June 2020, the long-awaited and expected proposed amendments said that, instead of imposing an administrative monetary fine, the Board to the Competition Law passed through the parliament. They entered addressed an opinion letter to the çiğ köfte producers pursuant to article into force on 24 June 2020.According to the recital of the Amendment 9/3 of the Law on Protection of Competition No. 4054 of 13 December Proposal, these amendments add the Authority’s experience of more 1994 (the Competition Law) ordering them to cease any behaviour which than 20 years of enforcement to the Competition Law and bring it may generate competition law infringements.

270 Cartel Regulation 2021 © Law Business Research 2020 ELIG Gürkaynak Attorneys-at-Law Turkey closer to European Union law. There are no further reviews or changes expected at this stage.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

In order to fight the social and economic disruption of the covid-19 outbreak, on 17 April 2020, a new law entered into force, which amends the Law No. 6585 on Regulation of Retail Trade (Law No.6585). The amendment prohibits producers, suppliers and retailers from exces- sively increasing prices and engaging in any activity that will restrict consumers’ access to products and distort competition, in particular conduct that obstructs consumers’ access to products (regardless of the relevant company being dominant or not). An Unfair Price Assessment Board will be established to enforce these new prohibitions and impose administrative monetary fines in case of violations, which are also set by the new law. As the Law No.6585 concerns retailers, one can conclude that only excessive price increases and hoarding practices in relation to the retail market will be subject to Unfair Price Assessment Board's supervision. Therefore, all players in the retail market should follow the principles and procedures of the Unfair Price Assessment Board that will be announced with a secondary law.

www.lexology.com/gtdt 271 © Law Business Research 2020 Ukraine

Nataliia Isakhanova, Yuriy Prokopenko and Andrii Pylypenko Sergii Koziakov & Partners

LEGISLATION AND INSTITUTIONS Notably, pursuant to article 3 of the Law On the Antimonopoly Committee of Ukraine, the AMCU’s key goal is to prevent, detect and Relevant legislation terminate infringements of the legislation on protection of economic 1 What is the relevant legislation? competition, and also to control the coordinated concerted actions of economic undertakings. In order to fulfil these objectives the AMCU, in The main domestic legislation regarding the protection of economic accordance with its powers under article 7 of the Law of Ukraine On the competition is as follows: Antimonopoly Committee of Ukraine, considers cases of infringements • the Constitution of Ukraine; in the form of anticompetitive concerted actions and after receiving the • the Economic Code of Ukraine; results of an investigation makes a decision, including one on the recog- • the Code of Ukraine of Administrative Offences; nition, suspension and elimination of infringements, and the imposition • Law No. 3659-XII on the Antimonopoly Committee of Ukraine; of fines and revocation of permission for concerted actions in the case of • Law No. 2210-III On Protection of Economic Competition; prohibited actions. Owing to these powers, the AMCU has an opportunity • Law No. 236/96-BP On Protection Against Unfair Competition; to execute control over the activity of certain participants in the economic • Law No. 1197-VII On Public Procurements; and sphere and to respond quickly to any violation of the legislation on • Law No. 1555-VII On State Aid to Undertakings. protection of economic competition, which allows it to prevent a negative impact on the competition or to lessen its impact on the relevant market. A noteworthy detail is that Ukrainian competition law does not use the Article 60 of the Competition Law provides the possibility for under- term ‘cartels’ but rather uses the notion of ‘anticompetitive concerted takings to challenge decisions of the AMCU in economic courts. Under actions’. Moreover, the Code of Ukraine of Administrative Offences and the the Economic Code of Ukraine, such claims fall within the exclusive Economic Code of Ukraine apply the term ‘illegal contracts’ to contracts jurisdiction of the economic courts of Ukraine. These courts have the dealing with monopoly price (tariff) fixing (raising), discounts, allow- authority to review and scrutinise decisions of the AMCU in order to find ances (surcharges), market setting (raising), market allocation based on breaches of the procedure or material law by the competition authority. geographic areas, types of products, types of customers, output volume or other factors. Therefore, both horizontal and vertical anticompetitive Changes concerted actions are subject to substantially the same control regime. 3 Have there been any recent changes, or proposals for change, The Law On Protection of Economic Competition (the Competition to the regime? Law) distinguishes between concerted actions and anticompetitive concerted actions. The AMCU adopted a new Regulation on Concerted Actions on 21 June According to Part 1 of article 5 of the Competition Law, concerted 2016, which details the procedure of consideration of respective appli- actions imply concluding agreements in any form by undertakings, cations. It envisages a significant reduction of the amount of data and taking decisions in any form by associations and other concerted documents required under the simplified procedure and also that the competitive behaviour (actions, inactivity) of undertakings. list of documents and information to be submitted as part of an applica- At the same time, article 6 of the Competition Law defines anticom- tion under the general procedure is properly structured. This regulation petitive concerted actions as concerted actions that have or may have came into force on 19 August 2016. impeded, eliminated or restricted competition. On 3 March 2016, amendments to article 22–1 of the Law On the Antimonopoly Committee of Ukraine came into force. These amendments Relevant institutions deal with ensuring the rights of anti-cartel investigation participants to 2 Which authority investigates cartel matters? Is there the protection of their confidential information and access thereto by a separate prosecution authority? Are cartel matters other parties to the procedure. adjudicated or determined by the enforcement agency, a On 9 August 2016, the AMCU approved new Recommendation separate tribunal or the courts? Clarifications on the application of the provisions of the second, fifth and sixth paragraphs of article 52 of the Law of Ukraine on Protection The Antimonopoly Committee of Ukraine (AMCU) is in charge of of Economic Competition, Parts 1 and 2 of article 21 of the Law of conducting investigations to detect and terminate anticompetitive Ukraine On Protection Against Unfair Competition (No. 39-pp) (the concerted actions in Ukraine. Under the law, the AMCU authorities consti- Recommendation Clarifications). The Recommendation Clarifications tute a system of bodies with the appropriate division of competences. define the approaches of the AMCU, which are recommended to its The main objectives, competencies, powers and organisational authorities in the process of determining the amount of fines for viola- principles of the AMCU’s system are envisaged in the Law of Ukraine on tion of legislation on economic competition protection in order to ensure the Antimonopoly Committee of Ukraine, articles 3 and 7. legal certainty and predictability of the application of these laws.

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In the process of calculating the amount of a fine for a violation, the acts (omissions) by undertakings on the commodity market, which AMCU is guided by the principles of proportionality, non-discrimination have resulted or may result in prevention, elimination or restriction of and reasonableness. competition in case if the analysis of the situation on the commodity The determination of the amount of penalty is carried out in market gives evidence that there are no objective reasons for taking two stages: such acts (omissions). • at the first stage, the basic amount of the fine for each respondent Anticompetitive concerted actions are prohibited and give rise to party is defined; and responsibility under the law. The AMCU may set conditions under which • at the second stage, this amount is adjusted for aggravating and the concerted actions are exempt from such prohibition. The AMCU mitigating circumstances. adopted Model Requirements as for criteria of admissibility applied to horizontal concerted actions (cartels). The amount of the fine imposed for anticompetitive concerted actions shall not exceed the limits specified in Part 2 of article 52 of the Joint ventures and strategic alliances Competition Law. 5 To what extent are joint ventures and strategic alliances As is known, in accordance with Part 2 of article 52 of the potentially subject to the cartel laws? Competition Law, a fine shall be imposed for anticompetitive concerted actions for up to 10 per cent of income (revenue) of an undertaking The law applies to any business entity that violates economic compe- from sales of products (goods and services) for the last financial year tition. Nevertheless, joint ventures and strategic alliances may not preceding the year in which the fine is imposed. In the case of illegal be considered as competitors if have specific contractual relations, profit exceeding 10 per cent of the income (revenue), a fine is imposed purposes of creation that may fall within exemptions granted by the at a rate not exceeding triple the amount of the illegally obtained profit. Antimonopoly Committee of Ukraine. The law provides for actions that The amount of illegally obtained profit may be assessed through the in certain circumstances are permitted by the AMCU according to the estimation algorithm. Regulation on the order of submission of applications to the AMCU for granting permission for concerted actions of undertakings (AMCU Order Substantive law No. 26–p as of 12 February 2002). These are the cases when the partici- 4 What is the substantive law on cartels in the jurisdiction? pants can prove that such actions contribute to: • the improvement of production, purchase or sale of goods, tech- The definition of ‘anticompetitive concerted actions’ is set out in Part 1 nical, technological and economic development; of article 6 of the Competition Law. Such actions imply concerted actions • development of small and medium-sized enterprises; that have resulted or may result in negative effects on competition (ie, • optimisation of export-import of goods; prevention, elimination or restriction of competition). The legislator • elaboration and application of unified technical specifications or considers anticompetitive concerted actions to be illegal regardless of standards; or whether they are intentional or negligent. Moreover, this term encom- • rationalisation of production. passes concerted actions (concluding agreements in any form by undertakings), adoption of any kind of decisions by a group of under- If the AMCU does not grant permission because of the threat of nega- takings and other concerted competitive conduct (acts and omission) of tive impact on competition, participants have the opportunity to prove undertakings. Concerted actions may be committed by both individuals that the positive effect of concerted action overcomes negative conse- and companies. For certain actions to be found illegal, the anticompeti- quences of competition restriction and on this ground to obtain the tive effect shall be determined. The Competition Law provides for an permission of the Cabinet of Ministers of Ukraine (CMU Regulation No. inexhaustive list of factors, which the AMCU should consider, for example: 219 as of 28 February 2002, last amended 17 July 2003). • setting prices or other conditions with respect to the purchase or In tenders carried out in Ukraine (including public procurements) sale of products; a lot of companies join strategic partnerships or joint ventures by hiring • limitation of production, product markets, technical and techno- each other with the purpose of participation at procurement where logical development, investments or establishment of control under qualification requirements allow such an option. In this case, it over them; is obvious that such a cooperation alliance should be treated as one • distribution of markets or sources of supply based on territo- participant and not as the cartel distorting the procurement. rial principle, in accordance with the assortment of products, From another hand, joint ventures and strategic alliances may fall the volume of their sale or purchase, circle of sellers, buyers or within the scope of cartels if their common activity and behaviour on consumers or otherwise; the market have signs of distortion or restriction of competition that • distortion of the results of bids, auctions, contests or tenders; is subject of consideration by the Antimonopoly Committee of Ukraine. • removal from the market or restriction of access to the market (exit from the market) for other undertakings, buyers or sellers; APPLICATION OF THE LAW AND JURISDICTIONAL REACH • applying different conditions to equivalent agreements with other undertakings, which results in the creation of a disadvantage for Application of the law these undertakings in terms of competition; 6 Does the law apply to individuals, corporations and other • concluding agreements provided that other undertakings assume entities? supplementary obligations, which according to their content or in terms of trade customs and other fair customs in entrepreneurial The legislation on the protection of economic competition regulates activities do not relate to the subject of these agreements; and relations of governmental authorities, municipal authorities, bodies of • significant restriction of the competitive ability of other undertak- administrative and economic management and control and business ings on the market without objective reasons thereto. undertakings, undertakings with other undertakings, with consumers, other legal and natural persons in relation to an economic competi- Moreover, taking account of particularities of market economy develop- tion. Both individuals and companies may participate in anticompetitive ment in Ukraine, anticompetitive concerted actions also imply similar concerted actions. www.lexology.com/gtdt 273 © Law Business Research 2020 Ukraine Sergii Koziakov & Partners

Under article 52 of the Competition Law, bodies of the Antimonopoly If the AMCU does not grant permission because of the threat of Committee of Ukraine may impose fines both on associations and negative impact on competition, participants have the opportunity to economic entities: legal persons; natural persons; a group of economic prove that the positive effect of concerted action overcomes negative entities being legal and (or) natural persons. consequences of competition restriction and on this ground to obtain Hence, the legislation on competition shall apply to all undertakings permission of the Cabinet of Ministers of Ukraine (CMU Regulation No. in the meaning of article 1 of the Competition Law, including individuals. 219 as of 28 February 2002, last amended 17 July 2003). In addition, officials of undertakings may be subject to administrative responsibility under the Code of Administrative Offences of Ukraine. Government-approved conduct 10 Is there a defence or exemption for state actions, Extraterritoriality government-approved activity or regulated conduct? 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If The Law of Ukraine ‘On State Aid’ says that state aid is forbidden as it so, on what jurisdictional basis? distorts competition unless otherwise provided by this Law. The Law also defines the concept of ‘state aid to economic entities’ as support in In conditions of internationalisation of economic links and restricting any form provided to economic entities at the expense of state or local business practices, legislation on protection of economic competition in resources, which distorts or threatens to distort economic competition, major countries of the world provides for an extraterritorial approach creating advantages for the production of certain types of goods or the to the elimination of anticompetitive actions: sanctions shall apply to production of certain types of business activity. offenders of competition irrespective of their legal allocation. State aid providers imply authorities, local governments, adminis- In accordance with article 2 of the Competition Law, it shall apply trative and economic management and control bodies, as well as legal to relations that influence or may influence economic competition in entities acting on their behalf, are authorised to dispose of state or local the territory of Ukraine (ie, shall apply to relations where participating resources and initiate and provide state aid. undertakings’ relations or actions influence or may influence economic The Law specifies when the state aid is or may be declared eligible. competition in the territory of Ukraine, and also in the case of performance Examples of such cases are: by undertakings of actions outside Ukraine, if such actions result or may • when the aid is of a social nature; result in negative influence on competition in the territory of Ukraine). • the final beneficiaries are consumers; • such aid is provided without discrimination as to the origin of the Export cartels goods; and 8 Is there an exemption or defence for conduct that only affects • aid is provided to compensate for damage caused by emergencies customers or other parties outside the jurisdiction? of man-made or natural nature.

There is no practice on export cartels in Ukraine. The state aid may be declared eligible in cases when: • it promotes the socio-economic development of regions where Industry-specific provisions living standards are low or unemployment is high; 9 Are there any industry-specific infringements? Are there any • implements national development programs or solving social and industry-specific defences or exemptions? economic problems of a national nature; • promotes certain types of economic activity or certain economic All anticompetitive concerted actions are a priori forbidden. But the spheres, or business entities in certain economic zones; and law grants a plethora of exceptions from the general requirements. • provides support for culture, , and Exemption from liability in certain circumstances may occur if the preservation of cultural heritage, if the impact of such state aid on offender voluntarily informs the AMCU authorities about the illegal deal. competition is insignificant. The system of exceptions to the general requirements of the prohibi- tion on anticompetitive concerted actions also includes agreements on The Cabinet of Ministers of Ukraine determines the criteria for assessing transfer of intellectual property rights and exemptions for small and the eligibility of certain categories of state aid. medium-sized enterprises. In addition, concerted actions in relation to the supply and use of one’s own products do not fall under the prohibi- INVESTIGATIONS tion. With the general prohibition of anticompetitive concerted actions, the law provides for actions that in certain circumstances are permitted Steps in an investigation by the AMCU according to the Regulation on the order of submission of 11 What are the typical steps in an investigation? applications to the AMCU for granting permission for concerted actions of undertakings (AMCU Order No. 26–p as of 12 February 2002). These The procedure for investigating infringements in the form of anticom- are the cases when the participants in such actions can prove that such petitive concerted actions is determined by the relevant provisions of actions contribute to the: the Competition Law and the Rules of Consideration of Infringement • improvement of production, purchase or sale of goods, technical, Cases, approved by Order of the AMCU as of 19 April 1994 No. 5. It envis- technological and economic development; ages the following stages of the investigation: • development of small and medium-sized enterprises; • determination of signs of the violation; • optimisation of export-import of goods; • starting the proceedings; • elaboration and application of unified technical specifications or • collection and analysis of evidence in the case; standards; or • drafting presentation on preliminary findings; • rationalisation of production. • preparation of objections and comments to submission, famil- iarisation by the parties with the case materials, carrying out a Without the permission of the AMCU entrepreneurs have no right to preliminary hearing in the case; perform these concerted actions. • adoption of the preliminary decision in the case;

274 Cartel Regulation 2021 © Law Business Research 2020 Sergii Koziakov & Partners Ukraine

• adoption by the Antimonopoly Committee of Ukraine (AMCU) of its Execution of the decision decision; and The decision provided by the AMCU is subject to execution by way of • execution of the decision. sending or delivery with a receipt or notifying otherwise. Decisions or orders of the AMCU shall be considered as handed to Grounds for the commencement of an investigation the defendant in 10 days after the disclosure of the information on the The AMCU may start an investigation on violation of legislation on adopted decision. protection of economic competition: • following the applications of undertakings, citizens, associations, Investigative powers of the authorities institutions and organisations on violation of the legislation on the 12 What investigative powers do the authorities have? Is court protection of economic competition; approval required to invoke these powers? • following presentations of bodies of power, bodies of local self- government or bodies of administrative management and control, In accordance with article 7 of the Law of Ukraine On the Antimonopoly concerning violations of the legislation on the protection of Committee of Ukraine, the AMCU has the following authority in the field economic competition; and of control over observance of the legislation on economic competition • under the AMCU’s own initiative. protection: • to consider applications and cases of violation of the legislation on In considering the application on violation of antimonopoly legislation a economic competition protection, and to carry out investigations on check of the facts stipulated in the application to identify signs of abuse these applications and cases; must be performed. • to make orders and decisions envisaged by the legislation on The period of consideration of applications on violation of the legis- economic competition protection in respect of applications and lation on protection of economic competition or legislation on protection cases, check and revise case decisions and make its conclusions from unfair competition is 30 calendar days. as to the classification of actions under the legislation on economic If additional information is needed, the period of consideration of competition protection; application may be extended by 60 days. • to check undertakings in accordance with the legislation as to their Conclusions made based on the analysis of applications and compliance with the requirements of the legislation on economic motions may be either negative (no signs of violation of legislation competition protection revealed) or positive. If the conclusions are negative, then the case will • to request from undertakings, associations, their officials and be dismissed, and the applicant shall be notified thereof in writing. employees and other individuals and legal entities information, including restricted data, during consideration of applications Consideration of the case on violation of the legislation on and cases of violation of the legislation on economic competition protection of economic competition protection; In the presence of signs of infringement, the competent authority of the • to appoint an examination and expert from among persons who AMCU orders the investigation of the case to begin. have the knowledge necessary for giving an expert opinion; The order to start proceedings shall be notified to the defendant • to examine the office premises and transport of undertakings and within three working days from the day of its adoption. legal entities, and remove or arrest articles, documents or other In cases when the defendant is determined after the start of the information media, which may be used as evidence or sources of case, within three working days he or she shall be notified on the order evidence in the case; on the initiation of the case consideration and the order on involvement • in cases of AMCU employees being prevented from exercising their in the case as a defendant. powers, to engage police authorities for the application of meas- The plaintiff may ask for its information in the case to be held in ures provided by legislation, in order to overcome any obstacles; confidence if a reasoned motion from the plaintiff is submitted to the • to engage police authorities, customs and other law-enforcement address of the authority of the AMCU at the start of the case including: authorities to ensure consideration of a case of violation of the • compilation and analysis of documents, expert opinions, explana- legislation on economic competition protection; tions of persons, other information that forms evidence in the case; • to carry out market research, set limits on the commodity market, • obtaining an explanation of persons involved in the case or any as well as the position of undertakings in this market, and make person upon their request or upon their own initiative; and relevant decisions or orders; • drawing up a presentation with preliminary conclusions following • to apply to a court with claims, applications and complaints on the the results of the collection and analysis of evidence in the case. application of the legislation on economic competition protection; and • to apply to, and receive from, competent authorities of other states Adoption of the preliminary decision the information necessary for exercising their powers. To prevent negative and irreversible consequences for undertakings, the AMCU may adopt a preliminary decision on banning the defendant, The above-mentioned powers of the AMCU do not require court authori- whose actions constitute signs of abuse, from performing certain sation for their execution. actions; or oblige them to perform certain actions when an urgent commitment to these actions is necessary under the legitimate rights INTERNATIONAL COOPERATION and interests of others. Inter-agency cooperation Adoption by the AMCU of its decision 13 Is there cooperation with authorities in other jurisdictions? If Upon consideration of cases of violation of legislation on protection so, what is the legal basis for, and extent of, such cooperation? of economic competition and unfair competition, the AMCU adopts its decision. Bilateral cooperation by the Antimonopoly Committee of Ukraine (AMCU) in the area of competition policy is based on principles of mutual confi- dence, a similarity of interests and traditions and enhanced legal norms. www.lexology.com/gtdt 275 © Law Business Research 2020 Ukraine Sergii Koziakov & Partners

Inter-agency cooperation is geared to the practical implementation of Burden of proof bilateral agreements in cross-border investigations. 16 Which party has the burden of proof? What is the level of The AMCU has concluded a range of inter-agency cooperation proof required? agreements to deepen professional cooperation with foreign competi- tion authorities in conducting investigations on violation of Ukrainian The burden of proof lies with the AMCU, which shall prove critical facts competition law. These agreements include: of the case unless otherwise prescribed by law. Any factual data may • the Memorandum on Cooperation in the sphere of competition be regarded as relevant evidence when they find an infringement or policy between the AMCU and Competition Authority of Turkey as lack thereof. These data may be obtained from different sources (eg, of 9 October 2013; parties’ or third parties’ statements, statements of public officials and • the Memorandum on Cooperation between the AMCU and the individuals, documentary and material evidence or expert opinions). Austrian Competition Authority as of 22 October 2009; National courts acknowledge that competition authorities are not limited • the Cooperation Agreement between the AMCU and the Ministry in choosing the source for obtaining the information necessary for the of Industry and Investment of the Republic of Belarus of 18 fulfilment of their tasks envisaged by the legislation on the protection of February 1997; economic competition. • the Memorandum on Cooperation between the AMCU and the The AMCU collects evidence regardless of where it is located. Parties Commission on Protection of Competition of Bulgaria as of 12 involved in a case may also submit evidence and prove its authenticity. December 2007; Evidence of anticompetitive concerted actions may be divided into • the Cooperation Agreement between the AMCU and the Competition two groups: Council of Latvia as of 29 April 2005; • direct evidence that directly exposes a link between cartel partici- • the Cooperation Agreement between the AMCU and the Competition pants and proves the anticompetitive nature of the concerted Council of the Republic of Lithuania as of 18 February 1997; actions; this is a documentary confirmation of the anticompetitive • the Cooperation Agreement between the AMCU and the President concerted actions; and of the Office of Competition and Consumer Protection of Poland as • secondary evidence that implies cartel practice but does not of 5 June 1997 (amended on 17 December 2007); directly expose the conditions under which the concerted actions • the Memorandum on Cooperation between the AMCU and the were carried out (eg, records of phone calls between competi- Competition Council of Romania as of 18 November 2010; tors’ representatives, correspondence, joint participation in events, • the Memorandum on Cooperation between the AMCU and the other proofs of contact making targeted at conduct coordination, Antimonopoly Office of the Slovak Republic as of 30 March 2007; compelled withdrawal from a market by competitors). • the Cooperation Agreement between the AMCU and the Office of Economic Competition of the Hungarian Republic as of 27 Circumstantial evidence January 2006; and 17 Can an infringement be established by using circumstantial • the Cooperation Agreement between the AMCU and the Ministry of evidence without direct evidence of the actual agreement? Economic Competition of the Czech Republic of 19 December 1994. Concerted actions may be committed by both individuals and companies. Cooperation between the AMCU and foreign competition authorities For certain actions to be found illegal, the anticompetitive effect must contributes to the exchange of experience, protection of competition be determined. The Competition Law provides a comprehensive list of within the parties’ territory and termination of distortion of competition factors on which the AMCU should focus, for example: in cases that go beyond the jurisdiction of domestic competition law. • setting prices or other conditions with respect to the purchase or sale of products; Interplay between jurisdictions • limitation of production, product markets, technical and techno- 14 Which jurisdictions have significant interplay with your logical development, investments or establishment of control jurisdiction in cross-border cases? If so, how does this affect over them; the investigation, prosecution and penalising of cartel activity • distribution of markets or sources of supply based on territorial in cross-border cases in your jurisdiction? principle, in accordance with the assortment of products, the volume of their sale or purchase, circle of sellers, buyers or consumers or Currently, the AMCU’s practice has not reported any examples of such otherwise; interplay with foreign jurisdictions concerning termination of anticom- • distortion of the results of bids, auctions, contests or tenders; petitive concerted actions. • removal from the market or restriction of access to the market (exit from the market) for other undertakings, buyers or sellers; CARTEL PROCEEDINGS • applying different conditions to equivalent agreements with other undertakings, which results in the creation of a disadvantage for Decisions these undertakings in terms of competition; 15 How is a cartel proceeding adjudicated or determined? • concluding agreements provided that other undertakings assume supplementary obligations, which according to their content or in Upon receipt of parties’ commentaries and objections, the Antimonopoly terms of trade customs and other fair customs in entrepreneurial Committee of Ukraine (AMCU) has to prepare a draft decision on the activities do not relate to the subject of these agreements; and basis of its preliminary findings. Normally, a decision on cartels is • significant restriction of the competitive ability of other undertak- made by the collegiate authorities that form part of the AMCU struc- ings on the market without objective reasons therefor. ture. The parties may submit commentaries on a preliminary decision. The authority adopts a final decision after considering commentaries, If there are facts showing a synchronous establishment of uniform prices proper discussion and deliberation. by business entities, these facts may be deemed evidence of violation of consumers’ rights to purchase products on the free market, whose participants compete with each other, and also confirm the intention

276 Cartel Regulation 2021 © Law Business Research 2020 Sergii Koziakov & Partners Ukraine and direction of such actions to restrict competition. Thus, if there is no Civil and administrative sanctions agreement, but business entities collectively restrict competition, their 20 What civil or administrative sanctions are there for cartel behaviour can be recognised as concerted action. The ban on concerted activity? actions may be in addition to the ban on restrictive competition agree- ments in the sense that the behaviour of economic entities may be The Competition Law provides for sanctions to be imposed on the partic- deemed to be anticompetitive even in the absence of an agreement. ipants of anticompetitive concerted actions as follows: To recognise collective actions as coordinated and violating anti- • a fine for anticompetitive concerted actions of up to 10 per cent of monopoly legislation, it is necessary to ascertain that business entities income (revenue) of an undertaking for the previous financial year; informed each other about their actions, coordinated them and that • double compensation for damage caused by committing the these actions harmed competition by preventing, restricting or elimi- infringement; or nating it. It is necessary to prove the reason for harming competition, • obligations upon termination of the consequences of infringing the harm to competition and the relationship between cause and effect. legislation on the protection of economic competition. The criteria for attributing collective actions to concerted actions and the delineation of agreements and concerted actions are quite vague in the Guidelines for sanction levels Competition Law. 21 Do fining or sentencing principles or guidelines exist? If yes, are they binding on the adjudicator? If no, how are penalty Appeal process levels normally established? What are the main aggravating 18 What is the appeal process? and mitigating factors that are considered?

AMCU decisions may be reviewed either by the committee or its admin- Cartels in Ukraine are not uncommon. The government should always istrative board, on its own initiative or upon application of the parties analyse markets and identify the preconditions that allow and even involved in a dispute. In the latter case, the AMCU initiates a review encourage business representatives to negotiate and violate legislation based on the appropriate request. The period for consideration of the on the protection of economic competition. review application or request shall not exceed two months. Identifying signs of a cartel is, in principle, not difficult, since most The decision shall be reviewed by the authority that has made the consumer markets are currently transparent for monitoring. Its main corresponding decision. It conducts the review on its own initiative or symptom is rising prices. But it is difficult to prove the substance in upon a party’s complaint. The decision may be reviewed if any circum- court because there is usually no direct evidence for this. stances existed that led to an illegal or groundless decision. The law In 2016, the AMCU updated the Recommendation Clarifications defines such circumstances as follows: essential facts of the case the regulating the order of fines determined for each infringement of the AMCU was not or could not be aware of; or when the decision was made legislation on protection of economic competition. This document on the basis of unreliable information; or when the AMCU authorised the submits anticompetitive concerted actions to the severest punishments. concerted actions on the basis of circumstances that have ceased to exist. In the process of fine determination, the AMCU is guided by the above- Pending the review, the AMCU may suspend enforcement of the mentioned Clarifications. decision. It shall respectively inform the parties involved in the case Horizontal anticompetitive concerted actions of undertakings in writing. (cartels) are subject to the severest punishments. For such actions, the Upon the result of the review, the AMCU may uphold the decision, AMCU’s Clarifications provide for a basic fine of 45 per cent of income modify the decision, reverse the decision or make a new decision. (revenue) from sales of goods (works, services) or the buyer’s expenses The decisions made by the AMCU may be modified, reversed or on the purchase of a product, either directly or indirectly related to the rendered invalid if: violation. • the AMCU fails to fully assess the facts that are relevant to the case; The total amount of a fine is to be determined in two steps. First, • the AMCU fails to prove the facts relevant to the case and that it the AMCU determines a basic amount of the fine, and second, the basic deems established; amount is adjusted according to any aggravating and mitigating factors. • the findings of the AMCU’s decision do not correspond to the facts The basic amount of the fine shall be reduced up to 50 per cent in of the case; or aggregate if evidence of mitigating factors is as follows: • the findings of the AMCU’s decision do not duly comply with or apply • a defendant ceases the alleged infringements (acts or omissions) substantial or procedural legal provisions. before an AMCU structural division has made a corresponding final or preliminary decision; The plaintiff, defendant or third party may appeal a decision of the AMCU • a defendant compensates for damage caused by the infringement, in full or in part to an economic court within two months from the date of or remedies the infringement in another way before the AMCU struc- receipt of the decision. Moreover, parties to the case may challenge the tural division makes a corresponding final or preliminary decision; AMCU’s actions in the administrative court. • a defendant eliminated conditions contributing to the infringements before the AMCU structural division has made the corresponding SANCTIONS final or preliminary decision; • the defendant’s cooperation with the AMCU structural division Criminal sanctions contributed to the finding of facts, notably where some facts and 19 What, if any, criminal sanctions are there for cartel activity? data not requested by the authorities were revealed or other infringements of competition legislation were found, including Currently, there is no criminal liability under Ukrainian legislation for those committed by another person; or anticompetitive concerted actions (cartels), as it was repealed in 2011 • the defendant proved that infringements were committed under for the purposes of humanisation of criminal legislation. Nevertheless, undue influence exercised by an executive authority, a local authority, the issue of defining criminal responsibility for anticompetitive concerted a body of administrative management and control or another enter- actions has been much debated and we expect to see the incorporation prise, on which the defendant is economically dependent. of relevant provisions into Ukrainian legislation soon. www.lexology.com/gtdt 277 © Law Business Research 2020 Ukraine Sergii Koziakov & Partners

Compliance programmes Parallel proceedings 22 Are sanctions reduced if the organisation had a compliance 25 Where possible sanctions for cartel activity include criminal programme in place at the time of the infringement? and civil or administrative penalties, can they be pursued in respect of the same conduct? If not, when and how is the Legislation on the protection of economic competition does not envisage choice of which sanction to pursue made? such an option. The basic amount of the fine shall be reduced up to 50 per cent in There is no criminal responsibility provided in Ukrainian legislation for aggregate if evidence of mitigating factors is as follows: anticompetitive concerted actions. Sanctions for violation of competi- • a defendant ceases the alleged infringements (acts or omissions) tion legislation are imposed by the AMCU. In addition, administrative before an AMCU structural division has made a corresponding final responsibility may be imposed on authorised persons or employees of or preliminary decision; an undertaking in the event of a violation by the said persons of the • a defendant compensates for damage caused by the infringe- Code of Ukraine on administrative offences, but it does not refer to ment or remedies the infringement in another way before the cartel regulation. AMCU structural division makes a corresponding final or prelimi- nary decision; PRIVATE RIGHTS OF ACTION • a defendant eliminated conditions contributing to the infringements before the AMCU structural division has made the corresponding Private damage claims final or preliminary decision; 26 Are private damage claims available for direct and indirect • the defendant’s cooperation with the AMCU structural division purchasers? Do purchasers that acquired the affected contributed to the finding of facts, notably where some facts and product from non-cartel members also have the ability to data not requested by the authorities were revealed or other bring claims based on alleged parallel increases in the infringements of competition legislation were found, including prices they paid (‘umbrella purchaser claims’)? What level of those committed by another person; or damages and cost awards can be recovered? • the defendant proved that infringements were committed under undue influence exercised by an executive authority, a local According to paragraph 1 of article 55 of the Competition Law, persons authority, a body of administrative management and control who have suffered harm as a result of violations of the legislation on or another enterprise, on which the defendant is economically protection of economic competition may apply to the economic court dependent. for compensation for damage. The procedure for application with respective claim to the court is common for all participants in the Director disqualification process. Damage caused by anticompetitive concerted actions shall be 23 Are individuals involved in cartel activity subject to orders compensated by the person who committed the violation at twice the prohibiting them from serving as corporate directors or amount of the damage. That means that ‘umbrella purchaser claims’ officers? are generally allowed. Nevertheless, such an approach is compara- tively new and is yet subject to consideration by the economic courts Legislation on protection of economic competition does not envisage of Ukraine. such an option, and this is usually to be decided by the business itself, especially now when it has internal compliance programmes. There Class actions is no criminal responsibility of individuals involved in cartel activity. 27 Are class actions possible? If so, what is the process for such Officials of undertakings may be subject to administrative responsibility cases? If not, what is the scope for representative or group under the Code of Administrative Offences of Ukraine, but this adminis- actions and what is the process for such cases? trative responsibility does not envisage prohibiting them from serving as corporate directors or officers. Class actions under their usual meaning are not possible in Ukraine. Economic Procedural Code of Ukraine provides an opportunity to file a Debarment complaint by several plaintiffs; however, each plaintiff acts in a lawsuit 24 Is debarment from government procurement procedures as an independent party. automatic, available as a discretionary sanction, or not available in response to cartel infringements? COOPERATING PARTIES

Debarment from government procurement procedures is envisaged in Immunity article 17 of the Public Procurement Act of Ukraine. Its application is 28 Is there an immunity programme? If so, what are the basic mandatory by the respective customer of procurement as a sanction elements of the programme? What is the importance of being for anticompetitive concerted actions (cartel infringements) leading to ‘first in’ to cooperate? distortion of public procurement procedure results and committed in the last four years before the organisation of respective procurement. Leniency programmes are allowed in Ukraine. A full release from The list of undertakings that are subject to debarment is available on liability is granted only to the participant in collusion that first appealed the AMCU’s website. A tender committee automatically makes a deci- to the AMCU with its application. The proof of first application is the sion on debarment on the basis of this list. marker letter of the AMCU. Member cartels claiming immunity must first voluntarily notify the antimonopoly authority about their participation in the anticompetitive concerted actions. At the same time, a participant has to provide infor- mation essential for rendering a decision on the case. Throughout the investigation, this party should cooperate as much as possible with the antimonopoly agency.

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It is also worth noting that the party is not relieved from liability Cooperation and does not receive immunity if it acted as the initiator of anticom- 32 What is the nature, level and timing of cooperation that petitive concerted actions, provided for control of such actions or has is required or expected from an immunity applicant? Is not provided all the evidence and information about the commitment there any difference in the requirements or expectations of anticompetitive concerted actions that it was party to and could for subsequent cooperating parties that are seeking partial freely obtain. leniency?

Subsequent cooperating parties The applicant is entitled to immunity (full release of liability) if, at the 29 Is there a formal programme providing partial leniency for same time, it satisfies the two following conditions. parties that cooperate after an immunity application has been First, it voluntarily reports its participation in the anticompeti- made? If so, what are the basic elements of the programme? tive concerted actions before other participants of anticompetitive If not, to what extent can subsequent cooperating parties concerted actions. expect to receive favourable treatment? Second, it provides information essential to the decision in the case. Its amount and content have to prove the violation of competition The official immunity programme does not provide leniency to indi- legislation in the form of a commitment to anticompetitive concerted viduals who appealed to the competition authorities following the actions, in particular, information on the membership of the participants application of immunity. However, it should be noted that in accord- in anticompetitive concerted actions; and the existence and content of ance with paragraphs 17 and 18 of the Recommendation Clarifications agreements, notes, memos, correspondence, minutes of general meet- of the Antimonopoly Committee, the fine for violation of legislation on ings proving coordinated competitive behaviour, while presenting economic competition may be reduced to 50 per cent where evidence relevant supporting documents, evidence on paper or other media. of the existence of mitigating circumstances is presented. Among such It is also worth noting that a party is not relieved from liability and circumstances, the following should be noted: does not receive immunity if it acted as the initiator of anticompetitive • termination of actions that contain elements of a violation before concerted actions or provided for control of such actions. the relevant decision of the AMCU; • remedying the conditions that contributed to commitment of the Confidentiality offence to the relevant decision; and 33 What confidentiality protection is afforded to the immunity • cooperation throughout the proceedings with the committee applicant? Is the same level of confidentiality protection authorities that contributed to clarifying the circumstances applicable to subsequent cooperating parties? What of the case. information will become public during the proceedings and when? Depending on the circumstances of the case, other mitigating circum- stances may be taken into account indicating that the defendant has Limited access is a special information regime that is to be established committed actions aimed at mitigating the negative effects of a violation in the interest of the competition investigation for protection of a party of competition in the interests of consumers on the commodity markets applying for such regime upon a substantiated request. In this case the of Ukraine. applicant has to provide the AMCU with a corresponding non-confiden- tial version of its information. Going in second 30 How is the second cooperating party treated? Is there an Settlements ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, 34 Does the investigating or prosecuting authority have the how does it operate? ability to enter into a plea bargain, settlement, deferred prosecution agreement (or non-prosecution agreement) or The immunity programme can only be granted to the first party of anti- other binding resolution with a party to resolve liability and competitive concerted actions appealed to the office of the AMCU. Other penalty for alleged cartel activity? What, if any, judicial or participants of anticompetitive concerted actions had better cooperate other oversight applies to such settlements? with the AMCU in the process of considering the case, as such coop- eration may be regarded as a mitigating circumstance when rendering There is no dispute settlement mechanism enshrined in the law allowing the decision. The above-mentioned conditions of cooperation are laid the AMCU and parties to the investigation to enter into deals on admis- down in paragraphs 17 and 18 of Recommendation Clarifications of the sion of guilt or otherwise. Antimonopoly Committee No. 39–pp. Corporate defendant and employees Approaching the authorities 35 When immunity or partial leniency is granted to a corporate 31 Are there deadlines for initiating or completing an application defendant, how will its current and former employees be for immunity or partial leniency? Are markers available and treated? what are the time limits and conditions applicable to them? Ukrainian legislation does not provide for employee responsibility for The basic requirement of legislation regarding the application of immu- anticompetitive concerted actions. Under the amendments made to the nity is the necessity of submission of application on release from liability Criminal Code of Ukraine in 2014, companies may be held liable, as may before the date of presentation of the preliminary findings of the case. companies’ officers. However, economic crimes resulting in substantial There is a practice of marker letters in Ukraine. The participant damages or threat of public danger have not yet been listed as giving may apply for a marker letter that confirms the primacy of its applica- rise to the criminal liability of employees. In its turn, the AMCU imposes tion to the committee on the release from liability. fines directly on undertakings.

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Dealing with the enforcement agency International double jeopardy 36 What are the practical steps for an immunity applicant 42 Do the sanctions imposed on corporations or individuals take or subsequent cooperating party in dealing with the into account any penalties imposed in other jurisdictions? In enforcement agency? private damage claims, is overlapping liability for damages in other jurisdictions taken into account? A cartel participant applying for immunity must be first to report its participation in the cartel to the AMCU. In addition, the immunity appli- The AMCU gives consideration to circumstances under which decisions cant has to provide the AMCU with data of critical relevance for the in analogous cases were made in other jurisdictions. The AMCU acts in case’s outcome. The applicant for immunity must cooperate with the full conformity with Ukrainian legislation. AMCU as much as possible throughout the investigation. Moreover, a cartel participant cannot be exempt from responsibility and obtain Getting the fine down immunity if it initiated concerted anticompetitive actions, ensured 43 What is the optimal way in which to get the fine down? control over such actions or failed to provide the AMCU with all the data and evidence of concerted anticompetitive actions that it was aware of The total amount of a fine is determined in two steps. First, the AMCU and was able to freely obtain. determines a basic amount of the fine, and second, the basic amount is adjusted according to any aggravating and mitigating factors. DEFENDING A CASE The basic amount of the fine shall be reduced up to 50 per cent in aggregate if evidence of mitigating factors is as follows: Disclosure • a defendant ceases the alleged infringements (acts or omissions) 37 What information or evidence is disclosed to a defendant by before an AMCU structural division has made a corresponding final the enforcement authorities? or preliminary decision; • a defendant compensates for damages caused by the infringe- A defendant may get access to case materials after the evidence has ment, or remedies the infringement in another way before the been collected and analysed and the AMCU has issued a statement on AMCU structural division makes a corresponding final or prelimi- its preliminary findings. The AMCU discloses to the defendant all infor- nary decision; mation that is available, except for any data that is confidential or with • a defendant eliminated conditions contributing to the infringements limited access. Under a special disclosure procedure, this is possible before the AMCU structural division has made the corresponding either upon parties’ agreement, after the non-confidential version is final or preliminary decision; prepared or by the court’s decision. • the defendant’s cooperation with the AMCU structural division contributed to the finding of facts, notably where some facts and Representing employees data not requested by the authorities were revealed or other 38 May counsel represent employees under investigation in infringements of competition legislation were found, including addition to the corporation that employs them? When should those committed by another person; or a present or past employee be advised to obtain independent • the defendant proved that infringements were committed under legal advice or representation? undue influence exercised by an executive authority, a local authority, a body of administrative management and control Ukrainian antitrust law does not provide for employee liability – the or another enterprise on which the defendant is economically AMCU imposes fines directly on undertakings – therefore, there is no dependent. need for counsel to represent an undertaking and its employees as defendants. UPDATE AND TRENDS

Multiple corporate defendants Recent cases 39 May counsel represent multiple corporate defendants? Does 44 What were the key cases, judgments and other developments it depend on whether they are affiliated? of the past year?

If counsel plans to represent multiple undertakings as defendants, The Antimonopoly Committee has exposed a cartel conspiracy in a there is a need to check for the presence of a conflict of interest between tender to select a contractor for the construction of facilities at the the clients. Chernobyl nuclear power plant and the Centralized Spent Fuel Storage Facility. Not for the first time, the violator of the competition legisla- Payment of penalties and legal costs tion is the company from the orbit of the corporation UKRBUD LLC 40 May a corporation pay the legal penalties imposed on its BC Ukrbudmontazh. Another participant in the conspiracy is PJSC employees and their legal costs? Ukrenergomontazh. When these anticompetitive concerted actions at construction It is possible, but Ukrainian competition law does not provide for works in Chernobyl were revealed the Antimonopoly Committee of employee liability – the AMCU imposes fines directly on undertakings. Ukraine (AMCU) assessed the fine for participants in the amount of 117 million Ukrainian hryvnias. During 2017-2018, these companies partici- Taxes pated in four procurement procedures totalling more than 1 billion 41 Are fines or other penalties tax-deductible? Are private hryvnias and won the three largest ones. The customers of the construc- damages payments tax-deductible? tion were the Chernobyl NPP and Energoatom. BC Ukrbudmontazh was fined 55 million hryvnias and PJSC Ukrenergomontazh was fined 62 The fine shall be paid from the undertaking’s income that is subject to million hryvnias. Both companies were also barred from participating in taxation. The fine is tax-deductible. public procurement for three years.

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Regime reviews and modifications 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

The Antimonopoly Committee of Ukraine has approved a new version of the amendments to the Law of Ukraine ‘On State Aid to Business Entities’. The document is designed to implement the government’s priority action plan, as well as within the priorities of the Committee's activities for 2020. Nataliia Isakhanova [email protected] The Antimonopoly Committee of Ukraine has completed work on proposals for the draft law ‘On Amendments to Certain Laws of Ukraine Yuriy Prokopenko on Competition and Antitrust Reform’ (No. 2730 of 14 January 2020), [email protected] which was submitted to Ukraine’s parliament by a number of depu- Andrii Pylypenko ties. The document should reform Ukrainian competition law in order [email protected] to increase the efficiency of the Committee's work, bring it in line with rules in force in the European Union, and implement best practices from Office 93 the EU and the United States. 5/24 Irynynska Street Proposals for the draft law were developed with the participa- Kiev 01001 tion of experts from the Twinning Project ‘Support to the Antimonopoly Ukraine Committee of Ukraine and agreed with US experts of the Competitive Tel: +380 44 590 4828 Markets project’, funded by United States Agency for International Fax: +380 44 590 4830 Development. www.kievbarrister.com At the first stage, changes to the legislation on protection of economic competition are proposed the following: • definition of terms (business entity, control); • concentration control; This decision was undertaken to enable healthcare facilities and • conducting inspections; Ukrainian pharmaceutical manufacturers to undertake the necessary • establishing priority in the consideration of applications; measures to prevent the introduction and spread of the acute respiratory • release from liability, settlement in cases (leniency and settle- disease covid-19 in Ukraine. ment), compensation for damages; On 1 August 2020, the ban on the export of PPE expired and was • joint and several liability for the payment of fines; and not extended. • financial independence, etc. Thus, the government has moved from a reasonable ban on the export of certain goods in response to the covid‑19 pandemic to moni- In the second stage of the reform, which is expected to occur during toring international events caused by the pandemic. 2021 or 2022, changes will be proposed regarding: It should be noted that on 27 May 2020, a government meeting • domination and abuse of monopoly position; approved a programme to stimulate the economy to overcome the effects • institutional independence; and of the covid-19 epidemic. The measures the programme proposes to • other issues. implement include: • promoting exports and facilitating access for enterprises to key raw Coronavirus materials; 46 What emergency legislation, relief programmes, enforcement • stimulating industrial production by increasing domestic demand policies and other initiatives related to competitor conduct through public procurement and protecting local producers; and have been implemented by the government or enforcement • ensuring uninterrupted sales of agricultural products and access of authorities to address the pandemic? What best practices are producers to markets. advisable for clients? It also proposes to effectively use the following trade defence measures: In 2020, Ukraine imposed bans on the exports of personal protective • protection of national producers from acts of unfair and growing equipment (PPE) and buckwheat. imports through the use of trade defence instruments; From the 11 March 2020, the Cabinet of Ministers of Ukraine • protection of national producers in the trade and economic sphere, adopted a number of resolutions temporarily restricting the export of including from protectionist policy measures of other states by some anti-epidemic goods, namely: prevention; • waterproof laboratory suits; • liberalisation and elimination of trade barriers on Ukrainian goods • gloves made of other polymeric materials; in foreign markets; and • medical non-sterile non-nitrile nitrile gloves; • protection of the rights and interests of Ukraine using World Trade • nitrile gloves; Organization mechanisms and international agreements. • disposable medical gowns; • medical masks (surgical); It is important to note that the implementation of some short-term initia- • goggles; tives in response to covid-19 to protect domestic producers through the • protective face shields; and use of trade defence instruments should also keep in mind the interests of • respirators of protection class not lower than FFP2. other market participants and Ukraine’s international economic interests. Since the introduction of quarantine measures in Ukraine, the These restrictions were caused solely by security measures to prevent Antimonopoly Committee of Ukraine has paid special attention to compli- the spread of covid-19 in Ukraine. ance with competition law by manufacturers of medicines, antiseptics etc. www.lexology.com/gtdt 281 © Law Business Research 2020 Ukraine Sergii Koziakov & Partners

Thus, during the rapid spread of the coronavirus SARS–CoV–2, antiseptics, disinfectants and sanitisers have become a necessary commodity among the population. Unfortunately, some manufacturers resorted to unfair competition, exaggerating the properties of their products or attributing to them properties that are not confirmed in accordance with applicable law. On 22 October, the AMCU recommended seven antiseptic manu- facturers stop disseminating information that may be misleading, due to the way of presenting inaccurate, incomplete information in product labelling and inform consumers about the consumer properties of their own products in a way that will not be misleading. These business entities were required to notify the Antimonopoly Committee of Ukraine of the results of their considerations of these recommendations within 10 days of receiving the notices.

282 Cartel Regulation 2021 © Law Business Research 2020 United Kingdom

Elizabeth Morony, Samantha Ward, Ben Jasper and Alexandra Buckley Clifford Chance

LEGISLATION AND INSTITUTIONS Before its departure, the United Kingdom issued a series of statu- tory instruments that will bring an end to the direct jurisdiction of the Relevant legislation EU’s institutions in the United Kingdom at the end of the transition 1 What is the relevant legislation? period. As a result, the European Commission will no longer enforce breaches of EU competition law in the United Kingdom unless they Cartel conduct can lead to both civil and criminal enforcement in formally commence their investigation (issue a statement of objec- the United Kingdom. The civil offence is set out in Chapter I of the tions) before 31 December 2020. Likewise, the CMA can only investigate Competition Act 1998 (CA 1998) and article 101 of the Treaty on the breaches of article 101 of the TFEU until 31 December 2020 unless the Functioning of the European Union (TFEU) and prohibits certain conduct relevant conduct occurred before that date. Investigations into conduct, by undertakings. The Competition and Markets Authority (CMA) is which takes place from 1 January 2021, will be restricted to breaches of required to enforce article 101 of the TFEU in UK competition matters Chapter I of the Competition Act 1998. under Council Regulation (EC) No. 1/2003. Another change is that section 60 of the CA 1998, which requires The criminal offence, which applies to individuals, not under­ UK competition law to be interpreted consistently with EU law, will be takings, is set out in section 188 of the Enterprise Act 2002. repealed. This will be replaced with a new section 60A of the CA 1998 from the end of the transition period, which requires UK competition Relevant institutions authorities and courts or to ensure that UK competition law is 2 Which authority investigates cartel matters? Is there interpreted consistently with EU law as at 31 December 2020, but allows a separate prosecution authority? Are cartel matters the departure from EU case law and principles that predate the end of adjudicated or determined by the enforcement agency, a the transition period where it is considered appropriate in light of certain separate tribunal or the courts? specified circumstances. Section 60A of the CA 1998 will apply from 1 January 2021 to all UK competition authority investigations. In October The CMA investigates and enforces breaches of Chapter I of CA 1998 and 2020, the draft European Union (Withdrawal) Act 2018 (Relevant Court) article 101 of the TFEU. There are also certain sectoral regulators such (Retained EU Case Law) Regulations 2020 was updated to provide that as Ofgem (gas and electricity), the Financial Conduct Authority and the both the UK Supreme Court and the Court of Appeal will be able to Payment Systems Regulator that have equivalent powers to the CMA to overturn established EU case law after the end of the transition period. apply and enforce Chapter I of CA 1998 and article 101 of the TFEU for conduct that takes place in their respective sectors. The Competition The EU Damages Directive Appeal Tribunal (CAT) hears appeals against cartel decisions taken by The EU Damages Directive was implemented in the United Kingdom the CMA or sectoral regulators. on 9 March 2017 through the Claims in respect of Loss or Damage In England, Wales and Northern Ireland, the CMA and the Serious arising from Competition Infringements (Competition Act 1998 and Fraud Office (SFO) prosecute the criminal offence under section 190(2) Other Enactments (Amendment)) Regulations 2017 (the Regulations). of the Enterprise Act 2002. The CMA can refer criminal cartel cases to Schedule 1 of the Regulations introduces certain changes, which include: the SFO, but will only do so if a case involves serious or complex fraud. • the granting of protection over leniency materials, settlement To date, criminal prosecutions have only been pursued by the CMA. The submissions and competition authorities’ investigation materials criminal cartel offence is tried either before a jury in a Crown Court or (schedule 1, sections 28 and 29 of the Regulations); before a magistrate. • confirmation of the rebuttable presumption that cartels cause In Scotland, the CMA and the Crown Office and Procurator Fiscal harm (schedule 1, section 13 of the Regulations); and Service (COPFS) cooperate to enforce the criminal offence, with the • benefits to immunity applicants in subsequent damages claims COPFS bringing prosecutions. through exemption from the general rule that cartelists will be jointly and severally liable for harm caused by the cartel Changes (schedule 1, section 15 of the Regulations) for conduct that has 3 Have there been any recent changes, or proposals for change, taken place wholly on or after 9 March 2017. to the regime? CMA guidance Brexit Following a consultation process in August to September 2020, the The United Kingdom formally left the European Union on 31 January CMA released updated guidance note Guidance on the CMA’s investi- 2020 and is currently in a transition period in which EU law continues to gation procedures in Competition Act 1998 cases: CMA8 (Investigation apply, until 31 December 2020. Procedures Guidance) regarding:

www.lexology.com/gtdt 283 © Law Business Research 2020 United Kingdom Clifford Chance

• investigation procedure: the Investigation Procedures Guidance have acted dishonestly in agreeing to engage in cartel activity. Since provides further detail on commitments and the CMA’s streamlined April 2014, the CMA is only required to demonstrate that an individual access to file approach; intended to enter into, or operate, an agreement. • director disqualification orders: for example, the guidance clarifies Section 188A of the EA 2002 states that an individual does not that directors’ written representations that relate to an investiga- commit an offence in various circumstances including: tion under the Company Directors Disqualification Act 1986 will • if customers are provided with relevant information about the only be disclosed to addressees of a statement of objections in arrangements before they enter into an agreement for the supply exceptional circumstances; of the affected product or service; • penalties: the draft penalty statement will now be sent at the same • in bid-rigging cases, if the person requesting bids is given relevant time as the statement of objections; and information about the arrangements at or before the time a bid • leniency: the CMA will not mention publicly whether any under- is made; and taking involved in a suspected cartel has applied for leniency at the • if relevant information is published in a specified manner before opening of its investigation. the arrangements are implemented.

Substantive law Section 188B of the EA 2002 provides three defences to the criminal 4 What is the substantive law on cartels in the jurisdiction? cartel offence: • at the time of the making of the agreement, the individual did not The Competition Act prohibits agreements between undertakings, deci- intend that the nature of the arrangements would be concealed sions by associations of undertakings or concerted practices, which: from customers at all times before they entered into agreements • may affect trade within the United Kingdom; and for the supply to them of the product or service; • have as their object or effect the prevention, restriction or distor- • at the time of the making of the agreement, the individual did not tion of competition within the United Kingdom (the Chapter I intend that the nature of the arrangements would be concealed prohibition). from the CMA; or • before the making of the agreement, the individual took reason- The Chapter I prohibition is based on article 101 of the TFEU. Currently, able steps to ensure that the nature of the arrangements would and until at least 31 December 2020, the Competition Act must be inter- be disclosed to professional legal advisers to obtain advice about preted in line with EU law, meaning that the Chapter I prohibition and its them before making or implementing them. exemptions closely follow EU law. Chapter I provides a non-exhaustive list of prohibited conduct. This Joint ventures and strategic alliances includes agreements to fix prices, limit or control production, markets, 5 To what extent are joint ventures and strategic alliances technical development or investment, and share markets or sources potentially subject to the cartel laws? of supply. The Office of Fair Trading’s applications for leniency and no-action in cartel cases guidance (which has been adopted by the CMA) Section 22 of the EA 2002 provides that if a joint venture or strategic states that by definition, cartel activities have as their object the preven- alliance constitutes a relevant merger situation under section 23 of the tion, restriction or distortion of competition and, therefore, there is no EA 2002, it must be notified to the CMA. The parties to a joint venture or need to assess the effects of the cartel activity. The guidance also makes a strategic alliance will need to determine whether they are in a rele- clear that cartel activity includes direct or indirect communication of vant merger situation, and if so, notify the CMA on a voluntary basis. specific, not publicly available, information regarding future pricing The CMA’s Mergers: Guidance on the CMA’s jurisdiction and procedure intentions between two or more competitors in a market. states that until a merger (or in this case, a joint venture) is completed, An agreement may be exempt from the Chapter I prohibition if an parties will still be subject to the Chapter I prohibition, and should undertaking can prove that the agreement improves production or distri- ensure that they continue to operate as separate undertakings while bution, promotes technical or economic progress and offers consumers the CMA considers approval of the arrangement. a fair share of the resulting benefit (section 9 of the CA 1998). However, this is highly unlikely to be the case in relation to cartel activity. APPLICATION OF THE LAW AND JURISDICTIONAL REACH The criminal cartel offence is a separate offence to the Chapter I prohibition that applies to individuals and not undertakings, and is set Application of the law out in section 188 of the EA 2002. Section 188 of the EA 2002 relates 6 Does the law apply to individuals, corporations and other only to horizontal agreements and provides that an individual is guilty entities? of an offence if he or she agrees (with one or more other persons) to make or implement, or to cause to be made or implemented, arrange- Chapter I of the Competition Act 1998 (CA 1998) and article 101 of the ments relating to at least two undertakings that involve direct and Treaty on the Functioning of the European Union (TFEU) apply to under- indirect price fixing, limitation of supply or production, market sharing takings that are broadly defined as any natural or legal person engaged and bid-rigging. This offence will be committed regardless of whether in economic activity, regardless of its legal form or how it is financed. the agreement was implemented. The Competition and Markets Authority (CMA) guidance as to the appro- When considering whether to bring a prosecution under section priate amount of a penalty confirms that this includes companies, firms, 188 of the EA 2002, the CMA will follow the Code for Crown Prosecutors, businesses, partnerships, individuals operating as sole traders, agri- which requires the CMA to consider whether a case has sufficient cultural cooperatives, associations of undertakings, non-profit making evidence for a realistic prospect of success. The CMA must then organisations and in certain circumstances, public entities that offer consider whether a prosecution is required in the public interest, taking goods or services on a given market. into account factors such as the seriousness of the offence and whether The criminal cartel offence under the Enterprise Act 2002 (EA 2002) prosecution is a proportionate response. only applies to individuals. In April 2014, the scope of the criminal cartel offence was broad- ened with the removal of the requirement that an individual must

284 Cartel Regulation 2021 © Law Business Research 2020 Clifford Chance United Kingdom

Extraterritoriality INVESTIGATIONS 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If Steps in an investigation so, on what jurisdictional basis? 11 What are the typical steps in an investigation?

Section 2(3) of the CA 1998 states that the prohibition in Chapter I of The key steps in a Competition and Markets Authority (CMA) investiga- the CA 1998 (the Chapter I prohibition) governs agreements that are tion are set out in detail in the CMA’s Competition Act Guidance. implemented or are intended to be implemented, in the United Kingdom. If an agreement is entered into outside of the United Kingdom, but Sources of the CMA’s investigations implemented, or intended to be implemented in the United Kingdom, The CMA’s Competition Act 1998 (CA 1998) guidance explains that the the Chapter I prohibition will apply. The qualified effects doctrine set CMA obtains information from several sources that may result in it out by the European Court of Justice in Intel v Commission [2017] Case opening an investigation. These include: C-413/14P provides that article 101 of the TFEU will apply not only to • businesses that have been involved in a cartel (and want to take agreements implemented in the European Union but also to agree- advantage of leniency); ments that have immediate, substantial and foreseeable economic • individuals with information about a cartel who apply for leniency; effects within the internal market. • complaints from individuals or businesses; Section 190(3) of the EA 2002 also states that the criminal offence • the CMA’s own research; and will apply to agreements entered into outside the United Kingdom if the • evidence gathered through other CMA work (eg, mergers or market agreement, or part of the agreement, is implemented, or intended to be investigations). implemented, in the United Kingdom. Initial assessment phase Export cartels To open a formal investigation, section 25 of the CA 1998 requires that 8 Is there an exemption or defence for conduct that only affects the CMA has reasonable grounds for suspecting that competition law customers or other parties outside the jurisdiction? has been breached. Generally, before the CMA forwards a case to its Enforcement Directorate, it is likely to request further information from Under section 2(1)(a) of the CA 1998, Chapter I prohibition only applies parties on a voluntary basis. However, this is less likely in a suspected to agreements if they affect trade within the United Kingdom. Section cartel case owing to concerns that this may prejudice the investigation. 190(3) of the EA 2002 requires that agreements must also be imple- mented, or intended to be implemented, in the United Kingdom. Opening a formal investigation If a complaint is likely to progress to a formal investigation, the case is Industry-specific provisions allocated a designated case team responsible for the daily running of the 9 Are there any industry-specific infringements? Are there any case and a senior responsible officer who authorises the opening of a industry-specific defences or exemptions? formal investigation and, where the senior responsible officer considers there is sufficient evidence, authorises a statement of objections. Agreements that are subject to exemptions under the After the decision has been taken to open a formal investigation, and Markets Act 2000 (schedule 2 of the CA 1998), the Broadcasting the CMA will send the businesses under investigation a case initiation Act 1990 or the Communications Act 2003 (schedule 2 of the CA 1998) letter setting out brief details of the conduct that the CMA is investi- are excluded from the scope of the Chapter I prohibition. Agreements gating, the relevant legislation, the case-specific timetable, and contact relating to the production or trade in an agricultural product are also details for the case team. The CMA will also generally publish a notice excluded from the Chapter I prohibition (schedule 3 of the CA 1998). of investigation on its website at this point. However, in cartel investiga- There are no industry-specific defences or exemptions for the crim- tions, the CMA is unlikely to include details of the investigation at this inal cartel offence. stage to avoid any impact on its ongoing investigation.

Government-approved conduct Investigative powers 10 Is there a defence or exemption for state actions, The CMA has a range of powers under the CA 1998 to obtain informa- government-approved activity or regulated conduct? tion to help it establish whether an infringement has been committed. Under section 40A(1) of the CA 1998, the CMA can impose administrative There is no general defence or exemption, but if there are exceptional penalties on undertakings for any failure to comply with investigat­ ory and compelling public policy reasons (schedule 1, section 7(1) of the requirements imposed on them through the CMA’s exercise of its CA 1998), a conflict with laws or international obligations (schedule powers. As set out in the CMA’s Administrative penalties: Statement of 1, section 6(1) of the CA 1998), the Secretary of State can exclude a Policy on the CMA’s approach, criminal offences also apply where an particular agreement from the scope of Chapter I. In May 2020, the individual interferes with the CMA’s investigatory powers. Secretary of State issued five statutory instruments that grant exemp- tions to the Chapter I prohibition in response to the covid-19 pandemic. Investigation outcomes These exemptions were granted to address issues such as excess CMA investigations can be resolved in several ways. demand for groceries supplies, logistics services and healthcare, and If the CMA considers that the case gives rise to competition excess supply in dairy farming and production and ferry services. There concerns, instead of continuing its investigation, the CMA may accept are limits to these exemptions. For example, the dairy exemption allows commitments from businesses on future conduct. The CMA must farmers and producers to share information on surpluses, stock and be satisfied that the commitments offered to address its competi- capacity (among other things) but does not permit them to share infor- tion concerns. mation on prices and costs. The CMA can issue a statement of objections where its provi- sional view is that the conduct under investigation amounts to an infringement of competition law. After allowing the businesses under www.lexology.com/gtdt 285 © Law Business Research 2020 United Kingdom Clifford Chance

investigation an opportunity to make written and oral representations The CMA’s Competition Act Guidance states that it will give formal on the statement of objections, if the CMA still considers that there has notice to anyone it wishes to interview, informing them that it intends to been an infringement, the CMA can issue an infringement decision and ask questions under formal powers. Where an individual has a current impose fines or directions, or both, to end any ongoing anti-competi- connection with the relevant undertaking at the time the formal notice is tive conduct. given, the CMA must also give a copy of the notice to that undertaking. A case decision group will be appointed by the Case and Policy The Guidance states that it will be generally inappropriate for a legal Committee if the CMA decides to issue a statement of objections. The adviser who only represents the undertaking to attend this interview. General Counsel and Chief Economic Adviser will ensure that there has been a thorough review of the legal and economic analysis (and the Power to enter premises (dawn raids with or without a warrant) supporting evidence) and will inform the case decision group of any In some cases, the CMA will visit premises to obtain information. The significant legal risks or risks on the economic analysis. The case deci- CMA has separate powers under CA 1998 that allow it to enter premises sion group will then decide whether, based on the facts and available with or without a warrant. The power that the CMA uses will depend on evidence, the CMA can establish that the legal test under the Chapter I whether it intends to inspect business premises (eg, offices) or domestic prohibition has been met. If a draft penalty statement has been issued, premises (eg, employees’ homes). The CMA can enter a business premise the case decision group will also decide whether a financial penalty without a warrant but cannot enter domestic premises without one. should be imposed and the appropriate amount of that penalty. The CMA can decide to close an investigation on grounds of Power to enter premises without a warrant administrative priorities. The CMA can also publish a reasoned Under section 27(1) of the CA 1998, any CMA officer who is authorised in no-grounds-for-action decision if it has not found sufficient evidence of writing by the CMA to do so has the power to enter business premises an infringement of competition law. without a warrant. Section 27(2) of the CA 1998 requires that the investi- gating officer give the occupier of the premises written notice indicating Investigative powers of the authorities the subject matter and purpose of the CMA’s investigation, setting out 12 What investigative powers do the authorities have? Is court the offences or sanctions, or both, that may apply if the recipient does approval required to invoke these powers? not comply. In certain circumstances, as set out in section 27(3) of the CA 1998, The CMA has a range of powers under the CA 1998 to obtain informa- the CMA need not give advance notice of entry. For example, the CMA tion to help it establish whether an infringement has been committed. need not give advance notice if it has a reasonable suspicion that the Under section 40A(1) of the CA 1998, the CMA can impose administrative premises are, or have been, occupied by a party to an agreement that penalties on undertakings for any failure to comply with investiga- the CMA is investigating or a business whose conduct the CMA is inves- tory requirements imposed on them through the CMA’s exercise of its tigating, or if a CMA-authorised officer has been unable to give notice to powers. As set out in the CMA’s Administrative penalties: Statement of the occupier, despite taking all reasonably practicable steps to do so. Policy on the CMA’s approach, criminal offences also apply where an When an inspection without a warrant is being conducted, section individual interferes with the CMA’s investigatory powers. 27(5) of the CA 1998 permits CMA officers to require any person to: These powers include the following. • produce any document that may be relevant to the CMA’s inves- tigation: CMA officers can take copies of, or extracts from, any Written information requests document produced; Under section 26(1) of the CA 1998, the CMA has the power to require • explain any document produced; and any person to produce a specified document or to provide specified • tell the CMA where a document can be found if CMA officers information, which the CMA considers relates to any matter relevant consider it to be relevant to the investigation. to the investigation. The CMA will send formal information requests in writing (a section 26 notice). This will indicate the subject matter and Power to enter premises with a warrant purpose of the CMA’s investigation, specify or describe the documents The CMA can apply to the court for a warrant to enter and search busi- or information, or both, that the CMA requires, and set out the offences ness premises (section 28(1) of the CA 1998) or domestic premises or sanctions, or both, that may apply if the recipient does not comply. (section 28A(1) of the CA 1998). The CMA may ask for documents such as internal business reports, The CMA generally seeks warrants if it has concerns that infor- copies of emails and other internal data. The definition of a document mation relevant to the investigation may be destroyed or otherwise under section 59(1) of the CA 1998 also allows the CMA to ask for infor- interfered with if requested through a written request (sections 28(1)(b) mation that is not in written form (eg, market-share estimates based on and 28A(1)(b) of the CA 1998). knowledge or experience). Where an inspection is carried out under a warrant, CMA officers are authorised to enter premises using such force as is reasonably Power to require individuals to answer questions necessary but only if they are prevented from entering the premises Under section 26A(1) of the CA 1998, the CMA can require any individual (sections 28(2) and 28A(2) of the CA 1998). The CMA’s Competition Act who has a connection with a business that is a party to the investigation Guidance states that CMA officers cannot use force against any person. to answer questions on any matter relevant to the investigation after The warrant also authorises CMA officers to search the premises giving formal written notice. Section 26A(6)(a) of the CA 1998 provides for documents that appear to be of the kind covered by the warrant and that an individual is considered to have a connection with a business if take copies or extracts from them (sections 28(2)(b) and 28A(2)(b) of the he or she is or was: CA 1998). The CMA’s Competition Act Guidance states that at the end of • concerned in the management or control of the undertaking; or the inspection, the CMA officer will provide, where practicable, a list of • employed by, or otherwise working for, the undertaking. documents and extracts that have been taken.

This may be a current connection or a former connection, for example Criminal Cartel Offence where the individual used to work for the undertaking under investiga- Under section 190(2) of the Enterprise Act 2002 (EA 2002), proceed- tion (section 26A(6)(a) of the CA 1998). ings relating to the criminal cartel offence may only be instituted by

286 Cartel Regulation 2021 © Law Business Research 2020 Clifford Chance United Kingdom the Director of the Serious Fraud Office (SFO) (section 190(2)(a) of the 2002). The CMA has stated that as part of its expanded role post-Brexit, EA 2002) or by, or with, the consent of the CMA (section 190(2)(b) of it plans to enhance its relationships with other NCAs both closer to the EA 2002). home and further afield. In September 2020, the CMA became a signa- The CMA and SFO both have investigation powers relating to the tory to the Multilateral Mutual Assistance and Cooperation Framework criminal cartel offence. The CMA’s powers are set out in sections 193 and for Competition Authorities that aims to improve inter-agency coopera- 194 of the EA 2002, whereas the SFO’s powers are set out in section 2 of tion between five countries: Australia, Canada, New Zealand, the United the Act 1987 (CJA 1987). The recent 2020 memorandum Kingdom and the United States. of understanding between the CMA and SFO sets out the presump- tion that if the SFO accepts a criminal cartel investigation, the powers Interplay between jurisdictions under CJA 1987 will be used rather than those under EA 2002. In joint 14 Which jurisdictions have significant interplay with your investigations, the SFO and CMA will consider which powers to use on a jurisdiction in cross-border cases? If so, how does this affect case-by-case basis. the investigation, prosecution and penalising of cartel activity Under section 193(1) of the EA 2002 and section 2(2) of the CJA in cross-border cases in your jurisdiction? 1987, the CMA and Director of the SFO respectively may require a person under investigation, and any other person whom they have reason to Cartel conduct can infringe both the prohibition in Chapter I of the CA believe has relevant information to answer questions or provide infor- 1998 and article 101 of the Treaty on the Functioning of the European mation relevant to the investigation. Notice of this will be sent to the Union (TFEU) if it has an effect on trade within the United Kingdom, and person under investigation in writing. an effect on trade between EU member states (under Regulation (EC) Under section 193(2) of the EA 2002 and section 2(3) of the CJA No. 1/2003). This requires that the CMA applies Chapter I of the CA 1998 1987, the CMA and the Director of the SFO respectively may require the and article 101 of the TFEU concurrently and meant that the CMA and person under investigation, or any other person, to produce specified the European Commission have historically referred cases to each other. documents that relate to the investigation. The CMA and Director of the Under the Brexit withdrawal agreement, the European Commission SFO are permitted to take copies of documents, or require the person will continue to be competent for UK cartel cases involving other EU producing them to explain them (section 193(3)(a) of the EA 2002 and member states that it initiates before 31 December 2020 (ie, where a section 2(3)(a) of the CJA 1987). Under section 193(4) of the EA 2002 statement of objections was issued before that date). The CMA’s guid- and section 2(3)(b) of the CJA 1987, if documents are not produced, the ance on the functions of the CMA after the end of the Transition Period CMA or Director of the SFO can require the person who was ordered to states at paragraph 2.7 that after 31 December 2020, Regulation (EC) produce them to state, to the best of their knowledge and belief, where No. 1/2003 ceases to apply to the United Kingdom, at which point the the documents are. European Commission will cease to be competent for any cases initiated Under section 194(1) of the EA 2002 and section 2(4) of the CJA after this date. 1987, the CMA and the Director of the SFO respectively have the power to request the grant of a warrant. This warrant is exercisable by any officer CARTEL PROCEEDINGS of the CMA (section 194(2) of the EA 2002) or any constable (section 2(5) of the CJA 1987) and enables them to enter premises using reasonable Decisions force, and to take possession of, or take steps to preserve, documents. 15 How is a cartel proceeding adjudicated or determined? Section 2(6) of the CJA 1987 states that a constable exercising a warrant under section 2(5) of the CJA will be accompanied by a member of the The key steps in a Competition and Markets Authority (CMA) investiga- SFO or a person whom the Director has authorised. tion are set out in detail in the CMA’s Competition Act Guidance. In relation to the criminal cartel offence, the burden of proof is on the INTERNATIONAL COOPERATION CMA if it proceeds with a prosecution under the criminal cartel offence under section 188 of the Enterprise Act 2002 (EA 2002). The standard Inter-agency cooperation of proof required in a criminal trial is proof beyond reasonable doubt, 13 Is there cooperation with authorities in other jurisdictions? If a higher standard than in civil investigations. If an individual wishes to so, what is the legal basis for, and extent of, such cooperation? plead a defence under section 188B of the EA 2002, then the burden of proof will shift to the defendant. The CMA’s Cartel Offence Prosecution The Competition and Markets Authority (CMA) is currently a member of Guidance states that the standard of proof required of the defendant to the European Competition Network (ECN), through which it cooperates prove one of the defences is the balance of probabilities. with other member states’ national competition authorities (NCAs). In particular, ECN guidance states that members: Burden of proof • inform each other of new cases and envisaged infringement 16 Which party has the burden of proof? What is the level of decisions; proof required? • coordinate and assist with investigations; and • exchange evidence and other information. Regarding the prohibition in Chapter I of the Competition Act 1998 (CA 1998), in Napp Pharmaceutical Holdings Limited and Subsidiaries v Absent any specific provisions in a future UK–EU trade agreement, the Director General of Fair Trading (2002) CAT 1, the Competition Appeal current cooperation with the ECN will cease when the transition period Tribunal (CAT) confirmed that the Office of Fair Trading (OFT) had the ends on 31 December 2020. Cooperation between the United Kingdom burden of proof in civil cartel cases. The standard of proof is the civil and other ECN members is expected to continue and could be docu- standard, so the Competition and Markets Authority (CMA) must prove mented in informally negotiated mutual assistance agreements. its case on the balance of probabilities. In Napp, the CAT held that the The CMA also cooperates with non-ECN members and is permitted, OFT Director must satisfy the CAT that based on strong and compel- under section 243(1) of the EA 2002, to disclose information to over- ling evidence, taking account of the seriousness of what is alleged, seas authorities for certain purposes that include supporting overseas the infringement is duly proved. This approach was confirmed in JJB authorities with their cartel investigation (section 243(2) of the EA Sports plc and Allsports Ltd v OFT [2004] CAT 17. However, the CAT www.lexology.com/gtdt 287 © Law Business Research 2020 United Kingdom Clifford Chance

held that ‘strong and compelling’ evidence should not be interpreted as The Competition and Markets Authority (CMA) has pursued only meaning that something akin to the criminal standard applies to cartel a handful of criminal convictions, with the most recent prosecution in proceedings. 2017. All successful CMA criminal prosecutions detailed below related Concerning the criminal cartel offence, the burden of proof is on the to conduct before April 2014, when the CMA was required to demon- CMA if it proceeds with a prosecution under the criminal cartel offence strate that an individual acted dishonestly in agreeing to engage in under section 188 of the Enterprise Act 2002 (EA 2002). The standard cartel activity. The CMA is now only required to demonstrate that an of proof required in a criminal trial is proof beyond reasonable doubt, individual intended to enter into or operate an agreement, making the a higher standard than in civil investigations. If an individual wishes to requirements of section 188 of the EA 2002 easier for the CMA to satisfy. plead a defence under section 188B of the EA 2002, then the burden of There have been several successful criminal prosecutions. An indi- proof will shift to the defendant. The CMA’s Cartel Offence Prosecution vidual was sentenced to two years (suspended), made the subject of Guidance states that the standard of proof required of the defendant to a six-month curfew order and disqualified from acting as a company prove one of the defences is the balance of probabilities. director in relation to the supply of precast concrete drainage prod- ucts (2017). In relation to the supply of galvanised steel tanks (2015), Circumstantial evidence three individuals were charged with one pleading guilty (receiving a 17 Can an infringement be established by using circumstantial suspended sentence of six months and 120 hours of community service) evidence without direct evidence of the actual agreement? and two others being acquitted following a jury trial. In relation to the marine hose cartel (2008), three defendants were sentenced to terms In Napp, the CAT confirmed that the OFT was able to rely on inferences of between two-and-a-half and three years in prison, disqualified from and presumptions about a certain set of facts (absent the existence of acting as directors for between five and seven years and, in some cases, any contradictory facts) to discharge the burden of proof. In JJB Sports ordered to pay costs. plc and Allsports Ltd, the CAT further confirmed that wholly circum­ The CMA has also pursued unsuccessful prosecutions. In 2010, stantial evidence could be sufficient to meet the required standard in four individuals involved in the airline passenger fuel surcharge cartel certain circumstances. were charged under section 188 of the EA 2002, but proceedings were withdrawn one month into the criminal trial. Appeal process 18 What is the appeal process? Civil and administrative sanctions 20 What civil or administrative sanctions are there for cartel The CAT hears appeals against decisions of the CMA and sectoral regula- activity? tors. Appeals in the CAT are on the merits and heard before a tribunal consisting of three members: either the president or a chairman and Civil sanctions for cartel activity include fines of up to a maximum of two ordinary members. The chairmen are generally judges of the High 10 per cent of the worldwide turnover of the undertaking. Following Court of England and Wales (and the equivalent courts in Scotland and the CMA’s 2019 concrete drainage products investigation, it issued total Northern Ireland), and other senior lawyers. The two ordinary members fines of £36 million to three undertakings, one of which received a £25.4 will likely be senior lawyers or economists, or those with expertise in million fine. The CMA may also impose directions or a declaration that business, accountancy or related fields. the agreements in question are void. Also, the CMA can apply to the To appeal a CMA or sectoral regulator’s decision, an appellant High Court for a Competition Disqualification Order that can result in a must file a notice of appeal that must satisfy certain format require- director being disqualified for up to 15 years. ments. The CAT registrar will send an acknowledgement of receipt to the If an undertaking fails to comply with a CMA investigation order, appellant and a copy of the notice to the respondent. The registrar will the CMA can issue directions to ensure an undertaking’s compliance then schedule a case management conference to discuss such items as with the relevant order. timing, procedural issues, and whether and when the parties should file a disclosure report. Guidelines for sanction levels The notice of appeal must be filed by the appellant with the regis- 21 Do fining or sentencing principles or guidelines exist? If yes, trar within two months of being notified of the regulator’s decision, under are they binding on the adjudicator? If no, how are penalty Rule 9 of the Competition Appeal Tribunal Rules 2015. These two months levels normally established? What are the main aggravating are counted from the day after the undertaking is notified of the regula- and mitigating factors that are considered? tor’s decision. Rules 15(1) and 15(6) provide that a respondent must file the defence and its annexes within six weeks after the date it receives The CMA sets out its approach to penalties in its Penalty Guidance, which the notice of appeal. The CAT will only grant extensions to any of these details its six-step approach to calculating financial penalties, namely: deadlines in exceptional circumstances (see Vodafone v Ofcom [2008] • calculation of the starting point (of up to 30 per cent of the turnover CAT 4). Hearing dates will be fixed at a case management conference. in the relevant product market and the relevant geographic market Appellants and the CMA also have a right to appeal CAT judgments in the last financial year preceding the date when the infringement either on a point of law or, in penalty cases, the amount of any penalty, ended) having regard to the seriousness of the infringement and with the permission of the CAT or the Court of Appeal. for general deterrence; • the starting point may be increased or, in certain circumstances, SANCTIONS decreased to reflect the duration of the infringement. Typically, the starting point will be multiplied by the number of years (or part Criminal sanctions years) of an infringement; 19 What, if any, criminal sanctions are there for cartel activity? • the penalty may then be adjusted based on aggravating or miti- gating factors. Aggravating factors include continuing the infringing Criminal sanctions for individuals are set out under section 190 of the behaviour after the commencement of the CMA’s investigation, Enterprise Act (EA 2002) and include custodial sentences (including a whereas a mitigating factor may be an undertaking partaking in term of up to five years) and fines. the infringement under severe duress or pressure;

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• the penalty may next be adjusted for specific deterrence and Parallel proceedings proportionality (eg, the amount may be increased to discourage 25 Where possible sanctions for cartel activity include criminal the undertaking from engaging in future breaches of compe- and civil or administrative penalties, can they be pursued tition law); in respect of the same conduct? If not, when and how is the • the penalty will then be adjusted downwards if it exceeds the choice of which sanction to pursue made? maximum penalty of 10 per cent of the worldwide turnover of the undertaking, and to avoid double jeopardy; and Sanctions for criminal and civil activity can both be pursued for the • there may be discounts for leniency, settlement or the CMA’s same conduct; however, only undertakings can be pursued for breach approval of a voluntary redress scheme or both. of the prohibition in Chapter I of the CA 1998, and only individuals can be pursued under section 188 of the EA 2002. Compliance programmes 22 Are sanctions reduced if the organisation had a compliance PRIVATE RIGHTS OF ACTION programme in place at the time of the infringement? Private damage claims The CMA can issue discounts of up to 10 per cent (in the mitigating 26 Are private damage claims available for direct and indirect factors stage set out above) if an undertaking can demonstrate that purchasers? Do purchasers that acquired the affected it has taken adequate steps appropriate to the size of its business product from non-cartel members also have the ability to concerned to achieve a clear and unambiguous commitment to compe- bring claims based on alleged parallel increases in the tition law compliance. In its penalty guidance, the CMA states that it will prices they paid (‘umbrella purchaser claims’)? What level of not issue discounts unless the undertaking can demonstrate that it has damages and cost awards can be recovered? reviewed its compliance activities, and changed them to reflect the fail- ings that led to the specific breach of competition law. Any compliance Any natural or legal person who has suffered loss or damage as a result of programme will also need to address competition law risk identifica- an infringement or alleged infringement of the prohibition under Chapter tion, risk assessment, risk mitigation and review activities. This might I of the Competition Act 1998 (CA 1998) or article 101 of the Treaty on the require an undertaking to make a public statement on its commitment Functioning of the European Union (TFEU) has the standing to bring a to compliance, and submit enhanced reporting on its compliance activi- claim in the High Court or the Competition Appeal Tribunal (CAT) (section ties to the CMA. 47A of the CA 1998), whether a direct or indirect purchaser. Claims can be brought on a follow-on basis after an infringement decision under Director disqualification Chapter I of the CA 1998 or article 101 of the TFEU has been issued, or 23 Are individuals involved in cartel activity subject to orders on a stand-alone basis where no infringement decision has been issued. prohibiting them from serving as corporate directors or Follow-on actions are based on the tort of breach of statutory duty, officers? and damages are awarded on the tortious basis of the amount of the loss, plus interest. Defendants can use the passing-on defence, which If a company has infringed Chapter I of the Competition Act 1998 (CA allows damages suffered by the purchaser of a cartelised product to 1998), its directors can be disqualified for up to 15 years if they knew be reduced if the defendant can prove that the purchaser passed on of, or ought to have known about, the arrangements. The CMA, and the overcharge to his or her customers. For claims where the loss or sectoral regulators, can either seek a competition disqualification order damage suffered was wholly on or after 9 March 2017, under section 36 from the High Court (or Court of Session in Scotland or Northern Ireland Competition Act 1998 and Other Enactments (Amendment)) Regulations High Court) or accept a competition disqualification undertaking from 2017, a court or tribunal may not award exemplary damages in compe- the director that has the same effect as a competition disqualification tition proceedings. However, for claims where loss or damage was order. To date, the CMA has disqualified 19 directors primarily by way of suffered before, there are circumstances in which exemplary damages competition disqualification undertakings. may be awarded. Costs generally follow the event, with the unsuccessful party Debarment paying the costs of the successful party (Part 44.2 of the Civil Procedure 24 Is debarment from government procurement procedures Rules). However, the CAT has a broader discretion in awarding costs automatic, available as a discretionary sanction, or not and will consider a range of factors. Generally, a successful party is available in response to cartel infringements? only likely to recover around two-thirds of its costs. The English courts have a wide discretion to order simple interest and have also awarded Debarment from government procurement procedure is not auto- compound interest. matic; however, sections 57(8)(d) and 57(12) of the Public Contracts Regulations 2015 set out that a contracting authority has the discretion Class actions to exclude economic operators from procurement procedure for three 27 Are class actions possible? If so, what is the process for such years, from the date of the relevant event, if it has sufficiently plausible cases? If not, what is the scope for representative or group indications to conclude that the economic operator has entered into actions and what is the process for such cases? agreements aimed at distorting competition. The High Court In the High Court, there is no equivalent in England and Wales of the US-style (opt-out) class-action procedure, nor is there a similar certifi- cation process. While it is possible to bring representative actions in the High Court, this is difficult to do. In Emerald Supplies Limited v British Airways plc [2009] EWHC 741 (Ch), the claimants attempted to bring a quasi-class action in the High Court. They alleged that they had paid inflated air-freight prices as a result of a price-fixing cartel to which www.lexology.com/gtdt 289 © Law Business Research 2020 United Kingdom Clifford Chance

British Airways and other airlines were a party and claimed damages for Type A themselves and other importers of cut flowers who they purported to Type A immunity is available for the first undertaking to apply for leni- represent. The claim was rejected at first instance, on the basis that the ency, in circumstances where there is no pre-existing investigation into class of direct and indirect purchasers was too ill-defined, and the direct the reported conduct and the undertaking did not coerce other under- and indirect purchasers would not all benefit from the relief sought by takings into participating in the cartel. An undertaking that satisfies the the claimant because of the need for direct purchasers to pass on the criteria will receive guaranteed immunity from civil penalties and, if its overcharge to indirect purchasers for the latter to benefit from damages current and former employees cooperate with the CMA, they will also awarded. This decision was upheld by the Court of Appeal. receive guaranteed immunity from criminal prosecution and protection from director disqualification proceedings. The Competition Appeal Tribunal The Consumer Rights Act 2015 (CRA 2015) introduced collective actions Type B in the CAT for both follow-on and stand-alone claims on an opt-in or an Type B leniency is available for the first undertaking to apply for leni- opt-out basis. ency, in circumstances where there is a pre-existing investigation. The There is a certification process in the CAT. Under section 47B of the undertaking must not have coerced other undertakings into partici- CA 1998 (as amended by the CRA 2015), any collective proceedings will pating in the cartel. The grant of any form of leniency or reductions only be continued if the CAT makes a collective proceedings order. It is in penalties to Type B applicants is discretionary in all circumstances, possible to bring either opt-in or opt-out collective proceedings; that is, but applicants may be eligible for corporate immunity from penalties or brought on behalf of each class member without specific consent unless penalty reductions up to 100 per cent, discretionary criminal immunity, a class member elects to opt-out by notifying the representative that his and protection from director disqualification proceedings for cooper- or her claim should not be included in the proceedings. ating current and former employees and directors. Type B leniency will The CAT will make this order if the person bringing the proceedings not be available where the CMA has sufficient information to establish is someone it could authorise to act as the representative and it is satis- the existence of the reported cartel activity. fied that the claims are eligible for inclusion in collective proceedings. To be eligible, claims must raise the same, similar or related issues of Type C fact or law and be suitable to be brought in collective proceedings. The In circumstances where another undertaking has already reported the collective proceedings must: cartel activity, or where the applicant has coerced another undertaking • authorise the person who brought the proceedings to act as the to participate in the cartel activity, only Type C leniency will be available. representative; The grant of Type C leniency is always discretionary, but applicants will • describe the class of persons whose claims are eligible for be eligible for discretionary reductions in corporate penalties of up to inclusion; and 50 per cent, discretionary criminal immunity to specific individuals, and • specify whether the proceedings are on an opt-in or an opt-out basis. protection from director disqualification proceedings.

To date, no collective proceeding has been authorised by the Subsequent cooperating parties CAT and there is an ongoing appeal before the Supreme Court in 29 Is there a formal programme providing partial leniency for Merricks v Mastercard that is likely to resolve current uncertainty about parties that cooperate after an immunity application has been the standard that claimants must meet to obtain a collective proceed- made? If so, what are the basic elements of the programme? ings order. If not, to what extent can subsequent cooperating parties expect to receive favourable treatment? COOPERATING PARTIES Type B and Type C leniency are available for parties that cooperate after Immunity an immunity application has been made. 28 Is there an immunity programme? If so, what are the basic elements of the programme? What is the importance of being Type B ‘first in’ to cooperate? Type B leniency is available for the first undertaking to apply for leni- ency, in circumstances where there is a pre-existing investigation. The The Competition and Markets Authority (CMA) offers three types of leni- undertaking must not have coerced other undertakings into partici- ency, based on the time at which an undertaking applies. pating in the cartel. The grant of any form of leniency or reductions in To be offered Type A or B leniency, an applicant must: penalties to Type B applicants is discretionary in all circumstances, but • accept that it participated in cartel activity in breach of the law; applicants may be eligible for corporate immunity from penalties or a • provide the CMA with all information, documents and evidence penalty reductions up to 100 per cent, discretionary criminal immunity, available to it regarding the cartel activity; and protection from director disqualification proceedings for cooper- • maintain continuous and complete cooperation throughout the ating current and former employees and directors. Type B leniency will investigation and until the conclusion of any action by the CMA as a not be available where the CMA has sufficient information to establish result of the investigation; the existence of the reported cartel activity. • refrain from further participation in the cartel activity from the time of disclosure of the cartel activity to the CMA (except as may be Type C directed by the CMA); and In circumstances where another undertaking has already reported the • not have taken steps to coerce another undertaking to take part in cartel activity, or where the applicant has coerced another undertaking the cartel activity. to participate in the cartel activity, only Type C leniency will be available. The grant of Type C leniency is always discretionary, but applicants will To be offered Type C leniency, an applicant must satisfy all the above be eligible for discretionary reductions in corporate penalties of up to conditions, except for the coercion requirement. Further detail on type 50 per cent, discretionary criminal immunity to specific individuals, and A, B and C leniency are set out below. protection from director disqualification proceedings.

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Going in second Confidentiality 30 How is the second cooperating party treated? Is there an 33 What confidentiality protection is afforded to the immunity ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, applicant? Is the same level of confidentiality protection how does it operate? applicable to subsequent cooperating parties? What information will become public during the proceedings and Parties that cooperate with the CMA after a leniency application has when? already been made may be eligible for Type C leniency. Type C appli- cants will be eligible for discretionary reductions in corporate penalties The CMA will not generally disclose that an undertaking has made a leni- of between 25 to 50 per cent, discretionary criminal immunity to specific ency application until it issues its statement of objections. individuals and protection from director disqualification proceedings. The Leniency Guidance provides that once an applicant becomes eligible Settlements only for Type C leniency, their position in relation to other Type C appli- 34 Does the investigating or prosecuting authority have the ability cants will not be decisive as to the level of discount they are awarded. to enter into a plea bargain, settlement, deferred prosecution However, it is likely that the further ahead in the queue an applicant is, agreement (or non-prosecution agreement) or other binding the easier it will be to provide greater value to the CMA and receive a resolution with a party to resolve liability and penalty for greater discount. alleged cartel activity? What, if any, judicial or other oversight The CMA also offers leniency plus if an undertaking is cooperating applies to such settlements? with the CMA in relation to its cartel activity in one market, and chooses to cooperate with the CMA in relation cartel activity in a second market, The CMA has the discretion to offer an undertaking an opportunity to it can receive a larger reduction in financial penalties for its cartel activi- enter into a settlement process, on the condition that the undertaking ties in the first market. admits that it breached the Chapter I of the Competition Act 1998 prohibi- tion, ceases the infringing behaviour immediately from the date that it Approaching the authorities enters into settlement discussions with the CMA (where it has not already 31 Are there deadlines for initiating or completing an application done so), and confirms it will pay a penalty set at a maximum amount. for immunity or partial leniency? Are markers available and The undertaking must also confirm that, among other things, it accepts what are the time limits and conditions applicable to them? that there will be an infringement decision made against it and that the streamlined administrative procedure will govern the remainder of the There are no set deadlines for initiating or completing a leniency appli- CMA’s investigation. An undertaking will still be able to appeal the CMA’s cation; however, the CMA will not accept leniency applications from infringement decision but if it does so, it will lose its settlement discount. undertakings once it has issued a statement of objections in relation to The amount of any reduction will be determined by several factors, the reported cartel activity. Also, if applicants would like to receive Type including whether the case is settled before or after the statement of A leniency, they will need to approach the CMA before the CMA launches objections is issued. However, settlement discounts are capped at 20 per a Chapter I of the Competition Act 1998 (CA 1998) or article 101 of the cent (before a statement of objections is issued) and up to 10 per cent Treaty on the Functioning of the European Union (TFEU) investigation, after a statement of objections is issued. and before other members of the cartel approach the CMA. The CMA may, at its discretion, choose to accept commitments from an undertaking on its future conduct instead of proceeding with Cooperation an investigation. These could be structural or behavioural, or a combi- 32 What is the nature, level and timing of cooperation that nation of both, but an undertaking’s compliance with them must not be is required or expected from an immunity applicant? Is too difficult for the CMA to monitor. If commitments address all of the there any difference in the requirements or expectations CMA’s concerns, the CMA cannot proceed with the investigation. If the for subsequent cooperating parties that are seeking partial commitments only partially address the CMA’s concerns, it can continue leniency? its investigation into the elements that have not been addressed.

The Leniency Guidance set out that applicants must first confirm their Corporate defendant and employees acceptance that their activity amounts to an infringement of Chapter I of 35 When immunity or partial leniency is granted to a corporate the Competition Act 1998 and article 101 of the TFEU. defendant, how will its current and former employees be Once applicants have confirmed this, the Leniency Guidance empha- treated? sise that applicants must maintain continuous and complete cooperation with the CMA throughout the CMA’s investigation and any subsequent The CMA offers three types of leniency, based on the time at which an proceedings brought by the CMA. If an applicant fails to cooperate with undertaking applies. the CMA continuously, they could lose the protections offered to them. The CMA expects applicants to genuinely assist them in effectively Type A investigating and taking enforcement action against the cartel conduct. An undertaking that satisfies the criteria will receive guaranteed immunity This requires that applicants take such steps as providing the CMA with from civil penalties and, if its current and former employees cooperate documents, and other evidence when they submit leniency applications. with the CMA, they will also receive guaranteed immunity from criminal prosecution and protection from director disqualification proceedings.

Type B The grant of any form of leniency or reductions in penalties to Type B applicants is always discretionary, but current and former employees who cooperate with the CMA may be eligible for discretionary criminal immunity and protection from director disqualification.

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Type C interviews that it conducts under its powers under section 26 of the The grant of any form of leniency or reductions in penalties to Type C Competition Act 1998. applicants is always discretionary, but specific individuals who coop- erate with the CMA may be eligible for discretionary criminal immunity Multiple corporate defendants and protection from director disqualification. 39 May counsel represent multiple corporate defendants? Does it depend on whether they are affiliated? Dealing with the enforcement agency 36 What are the practical steps for an immunity applicant While there are no restrictions on lawyers representing multiple corpo- or subsequent cooperating party in dealing with the rate defendants, there is a risk that conflicts of interest may arise and enforcement agency? corporate defendants will usually each have their own, independent representatives. Before making a leniency application, an applicant or its legal adviser can phone the CMA’s leniency enquiry line on a confidential basis to Payment of penalties and legal costs ascertain whether the CMA has an ongoing investigation or whether 40 May a corporation pay the legal penalties imposed on its Type A immunity is, in principle, available. The legal adviser will need to employees and their legal costs? provide certain details such as the relevant sector and dates to allow the CMA to check availability of Type A immunity. There are no blanket restrictions prohibiting a company from paying Once the CMA officer has made the relevant internal enquiries, they a civil penalty, or any associated legal costs imposed on an employee. will revert on the availability of Type A immunity. If Type A immunity is available, and the applicant wishes to proceed with its applications, the Taxes legal adviser will need to provide the applicant’s identity to the CMA. At 41 Are fines or other penalties tax-deductible? Are private this point, the CMA will give the applicant a preliminary marker, while damages payments tax-deductible? the applicant prepares its full leniency package. If Type A immunity is not available, the applicant should discuss with the CMA whether Type B Fines or penalties imposed by the CMA are not tax-deductible on the leniency is available. basis that they are incurred as a result of an undertaking’s breach of the law (see CIR v Alexander von Glehn Ltd [1920]). DEFENDING A CASE A private damages settlement payment may be tax-deductible if an allegation is neither admitted nor proved. Tax deductions for private Disclosure damages are not permitted where a payment is punitive but may be 37 What information or evidence is disclosed to a defendant by permitted where a payment is restitutionary. the enforcement authorities? International double jeopardy The Competition and Markets Authority (CMA) offers addressees of the 42 Do the sanctions imposed on corporations or individuals take statement of objections and any draft penalty statement a reasonable into account any penalties imposed in other jurisdictions? In opportunity to inspect the CMA’s file. The CMA will generally provide private damage claims, is overlapping liability for damages in addressees with copies of the documents referred to in the statement other jurisdictions taken into account? of objections and any draft penalty statement, and a schedule of docu- ments that sets out all other documents in the CMA’s file. If a penalty or fine has been imposed by the European Commission, or The CMA has made changes to its disclosure process, as reflected in by a court or other body in another EU member state in respect of an its updated Investigation Procedures Guidance, including a new stream- agreement or conduct, the CMA’s Penalty Guidance states that the CMA lined access-to-file approach whereby parties are provided with the key must take that penalty or fine into account when setting the amount of documents referred to in the statement of objections and a schedule of a penalty in relation to that agreement or conduct. other, non-key documents on the file. Addressees can request to inspect the additional documents set out in this schedule, and the CMA will deal Getting the fine down with these requests on a case-by-case basis. Where the CMA agrees to 43 What is the optimal way in which to get the fine down? disclose these documents, it will likely use a confidentiality ring or data room to facilitate disclosure. The CMA can issue discounts of up to 10 per cent if an undertaking The CMA generally provides addressees with the same time to can demonstrate that it has taken adequate steps appropriate to the review the file as to submit its written representations in response to size of its business concerned to achieve a clear and unambiguous the statement of objections and any draft penalty statement (which will commitment to competition law compliance. In its penalty guidance, the be up to a maximum of 12 weeks). CMA states that it will not issue discounts unless the undertaking can demonstrate that it has reviewed its compliance activities, and changed Representing employees them to reflect the failings that led to the specific breach of competition 38 May counsel represent employees under investigation in law. Any compliance programme will also need to address competi- addition to the corporation that employs them? When should tion law risk identification, risk assessment, risk mitigation and review a present or past employee be advised to obtain independent activities. This might require an undertaking to make a public statement legal advice or representation? on its commitment to compliance, and submit enhanced reporting on its compliance activities to the CMA. There are no restrictions on counsel representing employees under Type A immunity is available for the first undertaking to apply for investigation in addition to the corporation that employs them unless leniency, in circumstances where there is no pre-existing investigation there is a conflict of interest. However, in the Investigations Procedure into the reported conduct and the undertaking did not coerce other Guidance, the CMA states that its starting position is that it will be undertakings into participating in the cartel. An undertaking that satis- generally inappropriate for an undertaking’s legal adviser to attend fies the criteria will receive guaranteed immunity from civil penalties

292 Cartel Regulation 2021 © Law Business Research 2020 Clifford Chance United Kingdom and, if its current and former employees cooperate with the CMA, they will also receive guaranteed immunity from criminal prosecution and protection from director disqualification proceedings. Type B leniency is available for the first undertaking to apply for leniency, in circumstances where there is a pre-existing investigation. The undertaking must not have coerced other undertakings into partici- pating in the cartel. The grant of any form of leniency or reductions in penalties to Type B applicants is discretionary in all circumstances, but applicants may be eligible for corporate immunity from penalties or Elizabeth Morony [email protected] penalty reductions up to 100 per cent, discretionary criminal immunity, and protection from director disqualification proceedings for cooper- Samantha Ward ating current and former employees and directors. Type B leniency will [email protected] not be available where the CMA has sufficient information to establish Ben Jasper the existence of the reported cartel activity. [email protected] In circumstances where another undertaking has already Alex Buckley reported the cartel activity, or where the applicant has coerced another [email protected] undertaking to participate in the cartel activity, only Type C leniency will be available. The grant of Type C leniency is always discretionary, but applicants will be eligible for discretionary reductions in corpo- 10 Upper Bank Street rate penalties of up to 50 per cent, discretionary criminal immunity London to specific individuals, and protection from director disqualification E14 5JJ proceedings. United Kingdom Tel: +44 207 006 1000 Regarding settlements, the amount of any reduction will be deter- Fax: +44 207 006 5555 mined by several factors, including whether the case is settled before www.cliffordchance.com or after the statement of objections is issued. However, settlement discounts are capped at 20 per cent (before a statement of objections is issued) and up to 10 per cent after a statement of objections is issued. commission fees. Fines totalling £605,519 were imposed on the partici- UPDATE AND TRENDS pating companies. One company (the Romans Group) was not fined because it was the first company to come forward under the CMA’s Recent cases ­leniency programme. 44 What were the key cases, judgments and other developments of the past year? Precast concrete drainage In October 2019, the CMA issued a decision finding that 3 suppliers Nortriptyline of pre-cast concrete drainage products had infringed Chapter I of the The Competition and Markets Authority (CMA) made its first applica- Competition Act (and EU competition law) by agreeing to fix or coor- tion to the High Court for a competition disqualification order in the dinate their prices, share the market by allocating customers and Competition and Markets Authority v Michael Christopher Martin, in regularly exchanging competitively sensitive information. The firms which it was successful. Martin was not directly involved in meetings were fined more than £36 million. with the other undertakings but was aware of the cartel agreement and took no steps to stop the conduct. The High Court described this as a Regime reviews and modifications middle bracket serious case and disqualified Martin for seven years. 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency Fludrocortisone acetate tablets programmes or other elements of the regime? In July 2020, the CMA issued a decision imposing fines on suppliers of fludrocortisone acetate tablets for breaching the prohibition in Chapter Brexit I of the Competition Act 1998. All three companies admitted breaching The United Kingdom formally left the European Union on 31 January competition law and were fined £2.3 million in total. In June 2020, the 2020 and is currently in a transition period, during which EU law CMA successfully secured a binding disqualification undertaking from continues to apply, until 31 December 2020. one of the directors involved in the cartel. The EU Damages Directive Online resale price maintenance in the The EU Damages Directive was implemented in the United Kingdom on In 2020, the CMA issued four separate decisions regarding online retail 9 March 2017 through the Claims in respect of Loss or Damage arising price maintenance within the music industry (regarding guitars, synthe- from Competition Infringements (Competition Act 1998 and Other sisers, electronic drums, digital pianos and keyboards). The CMA found Enactments (Amendment)) Regulations 2017. that in the four separate cases, the companies had entered into or participated in a concerted practice whereby they instructed resellers CMA guidance not to sell their products below a minimum price point. The fines issued Following a consultation process in August to September 2020, the CMA by the CMA totalled more than £10 million. released updated guidance note Guidance on the CMA’s investigation procedures in Competition Act 1998 cases. Residential agency services In December 2019, the CMA issued a decision finding that estate agents in the Berkshire area had agreed to fix and maintain a minimum level of www.lexology.com/gtdt 293 © Law Business Research 2020 United Kingdom Clifford Chance

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

In March 2020, the CMA launched its COVID-19 Taskforce to identify, monitor and respond to competition and consumer problems arising from the covid-19 pandemic and the measures taken by the government to contain it. The CMA’s Guidance: CMA COVID-19 taskforce makes clear that the COVID-19 Taskforce was intended to: • scrutinise market developments to identify harmful sales and pricing practices as they emerged; • warn firms suspected of exploiting these exceptional circum- stances through unjustifiable prices or misleading claims; • take enforcement action if there is evidence that firms may have breached competition or consumer protection law and they fail to respond to warnings; • equip the CMA to advise the government on emergency legislation if there is a negative impact on people that cannot be addressed through existing powers; and • enable the CMA to advise the government on how to ensure compe- tition law does not stand in the way of legitimate measures that protect public health and support the supply of essential goods and services. It will also advise on further policy and legislative measures to ensure markets function as well as possible in the coming months.

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Steven E Bizar and Julia Chapman Dechert LLP

LEGISLATION AND INSTITUTIONS per se illegal (ie, the law provides for an irrebuttable presumption that such conduct had an anticompetitive effect on the market). Per se cartel Relevant legislation offences may be prosecuted criminally. 1 What is the relevant legislation? There are four elements of a criminal cartel offence: • an agreement; The primary statutory basis for federal cartel enforcement in the US is • between two or more competitors; section 1 of the Sherman Act (15 USC section 1), which prohibits ‘every • that restrains trade; and contract, combination . . . or conspiracy . . . in restraint of trade’. The • that affects either domestic (interstate) commerce or Federal Trade Commission Act prohibits ‘unfair methods of competi- import commerce. tion’ and ‘unfair or deceptive acts or practices’. The Federal Trade Commission (FTC) does not technically enforce the Sherman Act, In the absence of an agreement, unilateral conduct does not violate it instead relies on the FTC Act to challenge conduct that would also section 1 of the Sherman Act (although it may violate section 2 and violate the Sherman Act. Also, the FTC may bring cases under the FTC other laws). Act challenging coordinated conduct that is beyond the scope of the An ‘agreement’ under the Sherman Act need not be a formal written Sherman Act, such as invitations to collude. On the state level, state document. Agreements may be formed informally, through emails, antitrust and unfair competition laws substantially prohibit the same instant messages, orally or even with a ‘telling nod or wink’. The DOJ’s conduct as their federal counterparts and, depending on the state, may practice is to establish the existence of an agreement in criminal cases provide for criminal and civil enforcement. through direct evidence, reflecting the higher standard of proof that applies in the criminal context. The law, especially as it pertains to civil Relevant institutions enforcement, is more lenient. To establish an agreement in civil cases 2 Which authority investigates cartel matters? Is there where the evidence is circumstantial, the US Supreme Court has held a separate prosecution authority? Are cartel matters that the evidence must tend ‘to exclude the possibility of independent adjudicated or determined by the enforcement agency, a action’ and establish that the defendants ‘had a conscious commitment separate tribunal or the courts? to a common scheme’ (Monsanto v Spray-Rite Service Corp, 465 US 752, 768 (1984)). Proof that defendants engaged in parallel conduct is There are three principal enforcers of the federal antitrust laws. The US insufficient, standing alone, to evince a ‘conscious commitment’ (In re Department of Justice (DOJ), Antitrust Division has the power to investi- Chocolate Confectionary Antitrust Litigation, 801 F3d 383, 397-98 (3d Cir gate and to civilly and criminally prosecute cartel activity in the federal 2015)). Plaintiffs must also allege certain ‘plus factors’ to give rise to an courts. The FTC enforces the FTC Act but only has civil enforcement inference of an agreement. Plus factors are ‘proxies for direct evidence’ powers in FTC administrative proceedings or federal court. Private because they tend to ensure that courts punish concerted actions as plaintiffs may also sue in a federal court for treble monetary damages opposed to ‘unilateral, independent’ competitor conduct (In re Flat Glass and injunctive relief under the Sherman Act. State antitrust laws are Antitrust Litigation, 385 F3d 350, 360 (3d Cir 2004)). There is no defini- enforced criminally and civilly by state attorneys general in state courts tive set of plus factors, although some decisions do contain lists of such and civilly by private plaintiffs. State attorneys general may also enforce factors (ibid at 360). The most important plus factor is traditional, non- federal antitrust statutes. economic (non-expert) evidence of a conspiracy (ibid at 361). Information exchanges among competitors are not prosecuted Changes criminally but may be challenged in civil court if the anticompetitive 3 Have there been any recent changes, or proposals for change, effect of the exchange outweighs its procompetitive benefits. That said, to the regime? evidence that competitors exchanged competitively sensitive informa- tion may constitute circumstantial evidence of an underlying cartel. Not applicable. For this reason, competitors should exercise caution during business discussions not to discuss competitively sensitive topics such as pricing, Substantive law production levels, capacity, margins and the status and details of 4 What is the substantive law on cartels in the jurisdiction? customer negotiations or bids. The scope of information that is competi- tively significant varies by industry and companies should seek legal Federal court decisions provide the framework for analysing cartel guidance about the scope of information that could give rise to antitrust activity under the Sherman Act. Hard-core agreements among competi- liability if shared with a competitor. tors to fix prices (or any component of pricing), restrict output, rig bids or allocate customers or geographic territories are considered to be www.lexology.com/gtdt 295 © Law Business Research 2020 United States Dechert LLP

Joint ventures and strategic alliances Thus ‘[a]n effect cannot be “direct” where it depends . . . on uncer- 5 To what extent are joint ventures and strategic alliances tain intervening developments’ (ibid at 681). The Second and Seventh potentially subject to the cartel laws? Circuits and the Department of Justice have interpreted directness more broadly, applying a ‘proximate cause’ standard. See Minn-Chem, Joint ventures and other competitor collaborations may be subject to Int v Agrium Inc, 683 F3d 845, 859-61 (7th Cir 2012) (en banc); Motorola scrutiny under the antitrust laws just like any agreement among other- Mobility LLC v AU Optronics Corp, 775 F3d 816, 817-20 (7th Cir 2015); wise independent firms. To avoid per se treatment, courts have held that and Lotes Co v Hon Hai Precision Indus Co, 753 F3d 395, 410 (2d Cir the economic resources of the parties must be integrated so that, effec- 2014). While these standards are different, these differences may be of tively, the joint venture amounts to a single entity. It is not enough simply little practical distinction in most cases. to characterise an agreement among competitors as a joint venture; The courts have yet to define standards that would satisfy the courts have held joint venture agreements to be per se unlawful where ‘substantiality prong’ of the FTAIA. At least one court has remarked, the agreement was nothing more than a price-fixing device. By contrast, however, that Congress intended to permit antitrust claims only where a joint venture agreement is not per se unlawful under section 1 if it the alleged ‘anticompetitive conduct has . . . a quantifiable effect on ‘holds the promise of increasing a firm’s efficiency and enabling it to the US economy’ (In re TFT-LCD (Flat Panel) Antitrust Litigation, 822 compete more effectively’ (CopperweldCorp v Independence Tube Corp, F Supp 2d 953, 964 (NDCA 2011)). Finally, courts have held that plain- 467 US 752, 768 (1984)). Importantly, not every joint venture agreement tiffs must demonstrate that the requisite ‘direct effect’ on US commerce raises competitive issues (eg, if the participants are not competitors), was ‘foreseeable’ to an objectively reasonable person making practical and a legitimate collaboration can violate the antitrust laws. reasonable judgments (Animal Science Products, Inc v China Minmetals Corp, 654 F3d 462, 471 (3d Cir 2011)). APPLICATION OF THE LAW AND JURISDICTIONAL REACH Civil plaintiffs must further establish, as an additional element of their Sherman Act the claim, that this 'direct, substantial and reason- Application of the law ably foreseeable' effect on US domestic commerce 'gave rise to' their 6 Does the law apply to individuals, corporations and other claims (Motorola Mobility v AU Optronics Corp, 775 F3d 816, 818 (7th entities? Cir 2015)). Moreover, because each sale to the plaintiff represents a ‘separate accrual’ of a claim, the ‘give rise to’ prong of the FTAIA must Both individuals and corporations (as well as partnerships and other be satisfied for each transaction for which plaintiffs seek damages. In business entities) are subject to the antitrust laws. Criminal enforce- assessing whether a claim regarding a particular transaction satisfies ment actions may be brought against corporations and individuals. the ‘give rise to’ prong of the FTAIA, courts have generally used a proxi- Civil enforcement actions (both government and private) typically are mate cause standard. brought against corporations but may also be brought against individ- uals. Likewise, non-profit entities are subject to the antitrust laws. Export cartels 8 Is there an exemption or defence for conduct that only affects Extraterritoriality customers or other parties outside the jurisdiction? 7 Does the regime apply to conduct that takes place outside the jurisdiction (including indirect sales into the jurisdiction)? If Under its current interpretation, the FTAIA limits the scope of Sherman so, on what jurisdictional basis? Act claims to anticompetitive conduct that affects either import commerce or has a direct, substantial and reasonably foreseeable The extraterritorial reach of the US antitrust laws is governed by the effect on US domestic commerce or US exporters. Export cartels are Foreign Trade Antitrust Improvements Act (FTAIA) (15 USC section thus beyond the scope of the Sherman Act. 6a). The FTAIA establishes a two-prong test for determining whether a defendant’s foreign conduct falls within the scope of US antitrust laws. Industry-specific provisions First, the threshold inquiry is whether the defendant’s foreign conduct 9 Are there any industry-specific infringements? Are there any involves US ‘import trade or import commerce’. If so, the conduct falls industry-specific defences or exemptions? within the scope of US antitrust laws. The courts have strictly inter- preted import commerce to capture only ‘transactions in which a good There are numerous statutory and judicially created exemptions and or service is being sent directly into the United States, with no inter- immunities from the antitrust laws. Congress has, to varying degrees, mediate stops’ (Minn-Chem, Inc v Agrium, Inc, 683 F3d 845, 854 (7th expressly exempted certain industry practices and activities from anti- Cir 2012)). The Ninth Circuit has likewise interpreted import commerce trust liability, usually in heavily regulated sectors such as the transport, to capture only ‘transactions that are directly between the plaintiff healthcare, telecommunications, energy, insurance and financial indus- purchasers and the defendant cartel members’ (US v Hsiung, 778 F3d tries. The McCarran-Ferguson Act (15 USC section 1011 et seq) is one 738, 755 (9th Cir 2015)). example of such legislation, exempting state law-regulated insurance Alternatively, if the conduct does not involve ‘import trade or import business that does not involve any agreement to ‘boycott, coerce, or commerce’, the defendant’s foreign conduct falls outside the scope of intimidate’. The courts have also created various industry-specific US antitrust law unless it satisfies both prongs of the FTAIA’s ‘domestic exemptions, including the well-known ‘baseball exemption’. effects’ exception (ie, the foreign conduct has a ‘direct, substantial, and Other exemptions and immunities apply more broadly but gener- reasonably foreseeable effect’ on US domestic or import commerce, or ally share the characteristic that they seek to avoid disruption of an on the export commerce of a US-based exporter, and that effect ‘gives existing regulatory scheme. The 'filed-rate doctrine' or 'Keogh doctrine’, rise to’ the plaintiff’s claims (F Hoffmann-La Roche Ltd v Empagran SA, for example, limits liability for unreasonable rates if those rates are 542 US 155, 162 (2004); 15 USC section 6(a)). filed with a federal or state regulatory agency (Keogh v Chicago & The courts are split on the degree of ‘directness’ required to satisfy Northwestern Railway, 260 US 156, 161-65 (1922)). Similarly, the ‘polit- the domestic effects test. The Ninth Circuit has held that an effect is ical question doctrine’ removes from federal judicial jurisdiction cases ‘direct’ only if it ‘follows as an immediate consequence of [defendants’] raising questions of policy decisions that are the prerogative of the activity’ (US v LSL Biotechnologies, 379 F3d 672, 680 (9th Cir 2004)). executive or legislative branches of government.

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Government-approved conduct proffer of cooperation and testimony or by offering counterevidence 10 Is there a defence or exemption for state actions, of their own. Targets also have the right to testify on their own behalf government-approved activity or regulated conduct? before the grand jury, although in practice this is uncommon, given the exclusion of defence lawyers from the grand jury. A series of court decisions beginning with Parker v Brown, 317 US 341 Civil investigations do not involve a grand jury. Instead of (1943) have exempted state governments from antitrust liability for subpoenas, the federal or state enforcement agency will generally issue conduct that, if engaged in by a private actor, would certainly be consid- civil investigative demands (CIDs) to obtain documents or sworn written ered anticompetitive. This ‘state action doctrine’, or ‘Parker doctrine', or oral testimony from targets of the investigation, as well as from third may also extend to private actors in certain limited circumstances, when parties. The evidence resulting from CIDs may form the basis of a civil their conduct is taken in furtherance of an express regulatory scheme lawsuit in federal court (by the DOJ or Federal Trade Commission (FTC)) under state policy and is subject to state supervision. or an FTC administrative proceeding before an administrative law judge. Other exemptions and immunities seek to avoid disruption of an Cartel investigations, either civil or criminal, follow no set timeline existing regulatory scheme. The ‘filed-rate doctrine’ or ‘Keogh doctrine’, and may linger for several years before proceeding to any enforcement for example, limits liability for unreasonable rates if those rates are action or termination. filed with a federal or state regulatory agency (Keogh v Chicago & Northwestern Railway, 260 US 156, 161-65 (1922)). Similarly, the ‘polit- Investigative powers of the authorities ical question doctrine’ removes from federal judicial jurisdiction cases 12 What investigative powers do the authorities have? Is court raising questions of policy decisions that are the prerogative of the approval required to invoke these powers? executive or legislative branches of government. Internationally, the ‘foreign sovereign compulsion doctrine’ may The antitrust enforcement agencies have far-reaching, although not provide a defendant with antitrust immunity if it can establish that it unlimited, investigative powers. The DOJ has at its disposal the broad was compelled to violate US antitrust law because it was impossible to investigative powers of the grand jury. Through a grand jury subpoena, comply with both US antitrust law and the law of a foreign jurisdiction testimony and documents may be obtained from witnesses throughout simultaneously. the United States. Also, upon a finding of probable cause by a federal judge, the DOJ may obtain warrants permitting it, through the Federal INVESTIGATIONS Bureau of Investigation, to search for and seize physical evidence located on private premises, including documents and electronic devices, or Steps in an investigation to place wiretaps allowing it to audit and record private phone calls 11 What are the typical steps in an investigation? between suspected cartel participants. Because much of the necessary evidence is in the possession of the cartel participants, the DOJ often The existence of a cartel typically comes to light when a participant grants immunity to key individual witnesses in exchange for cooperation applies for leniency and provides evidence of criminal activity. Many and testimony. leniency applications are now triggered as a result of corporate compli- In the case of witnesses located outside the United States, the ance programmes. Other common sources of information for the agency may initiate a border watch. If an individual on a border-watch enforcement agencies include existing investigations or litigation in list were to voluntarily enter the United States, immigration and border related industries, whistle-blowers, tips from customers or competitors, control authorities may detain the individual and will automatically or even publicly available evidence of suspicious market behaviour. notify the DOJ. There is no requirement of a warrant or showing of prob- Evidence of cartel behaviour has also been uncovered during merger able cause to place an individual on a border-watch list, which is not control investigations conducted under the Hart-Scott-Rodino Act. public and not formally disclosed to defence counsel. If the individual In a criminal investigation, the Department of Justice (DOJ) enters the United States and is not detained, the DOJ's practise is to presents evidence to a grand jury, whose purpose is to determine conduct a drop-in interview, whereby lawyers and agents may appear whether there exists sufficient evidence to indict the targeted company unannounced, often at the person's hotel or workplace, and request to or individuals. An indictment is simply a finding of sufficient evidence to speak with the individual. Although cooperation with the interviewers is proceed to trial, not a finding of guilt. The bar the grand jury must meet voluntary, individuals are often unaware of their rights making resisting to return an indictment is low and defence counsel is excluded from the the pressure exerted by the authorities in these situations difficult. grand jury process. The DOJ, therefore, generally will obtain any indict- There also exists the risk that physical evidence, such as documents ment it seeks from a grand jury. Defendants facing criminal antitrust and electronic devices, may become vulnerable to search or seizure at charges have the right to a trial by jury, where the DOJ must prove guilt the US border, where border control authorities enjoy extensive inves- beyond a reasonable doubt. tigative powers. Foreign companies under investigation by the DOJ, The grand jury has broad investigatory powers that are separate therefore, should carefully consider the circumstances under which from those of the DOJ. A grand jury may subpoena the production of executives may travel to the United States. documents and the testimony of witnesses. Witnesses may be served with a grand jury subpoena anywhere in the US (Fed R Crim P 17(e)). INTERNATIONAL COOPERATION While witnesses have the right under the Fifth Amendment to the US Constitution to refuse to testify if their testimony would potentially Inter-agency cooperation incriminate them, the DOJ may compel testimony by granting the 13 Is there cooperation with authorities in other jurisdictions? witnesses immunity, thereby removing the risk of self-incrimination. If so, what is the legal basis for, and extent of, such Before the indictment, the DOJ will identify certain targets of the cooperation? investigation, including corporations and individuals whom it considers to be potential defendants based on the existence of substantial evidence US antitrust agencies routinely cooperate with their counterparts in linking the target to the crime. Individual targets typically obtain indi- the European Commission and elsewhere around the world. In its most vidual outside counsel once they become aware of their status. Targets visible form, this cooperation includes the coordinated raids of global have the right to meet the DOJ to try to avoid indictment through a cartel participants, but cooperation behind the scenes is increasingly www.lexology.com/gtdt 297 © Law Business Research 2020 United States Dechert LLP

common. For example, under bilateral mutual legal assistance treaties CARTEL PROCEEDINGS (MLATs), US agencies share information with foreign counterparts. The United States has MLATs with approximately 80 jurisdictions that create Decisions a channel for the taking of testimony, the provision of documents or 15 How is a cartel proceeding adjudicated or determined? other physical evidence, and executing searches and seizures. Under these MLATs, investigators may exchange evidence, where possible Cartel cases are adjudicated by courts of law. Criminal cases that under law, and theories of the case. proceed to trial are heard in federal court, where the defendant may In addition to MLATs, the United States has entered into bilat- demand trial by jury. Civil cases may also be heard in federal court, eral antitrust cooperation agreements (ACAs) and memoranda of or, where the Federal Trade Commission is the enforcing agency, in understanding (MOUs), which are less formal than MLATs and do not administrative proceedings before an administrative law judge. Cases generally bind the agencies to provide information or evidence but brought by state regulators under both federal law and state law may facilitate cooperation between the agencies. The United States has be heard in federal court, but purely state prosecutions are heard in entered into ACAs with, among others, Australia, Brazil, Canada, the state courts alone. European Union, Germany, Israel, Japan and Mexico. The Department of In practice, the vast majority of cartel prosecutions are resolved Justice (DOJ) and the Federal Trade Commission have bilateral MOUs before trial by way of a plea agreement. In the civil context, nearly all with corresponding agencies in China, India and Russia, which serve a litigations are resolved by way of a dispositive motion or by way of similar function to the ACAs. settlement. The United States and the individual agencies participate in several organisations or international cooperative efforts whose aim is Burden of proof to increase and facilitate cooperation among antitrust authorities and 16 Which party has the burden of proof? What is the level of to promote greater procedural and substantive convergence among proof required? the global antitrust regimes, including the International Competition Network, the Competition Committee of the Organisation for Economic Criminal violations of the US antitrust laws must be proven beyond a Cooperation and Development and the United Nations Conference on reasonable doubt. Civil liability is established using the lower standard Trade and Development. of preponderance of the evidence. The initial burden to prove guilt or liability always rests with the government or the plaintiff. Defendants Interplay between jurisdictions have the burden to prove any affirmative defences only after this initial 14 Which jurisdictions have significant interplay with your burden is satisfied. jurisdiction in cross-border cases? If so, how does this affect the investigation, prosecution and penalising of cartel activity Circumstantial evidence in cross-border cases in your jurisdiction? 17 Can an infringement be established by using circumstantial evidence without direct evidence of the actual agreement? Because the DOJ’s subpoena powers extend only as far as the US border, relationships with foreign enforcers are critical to its ability In the criminal context, the Department of Justice’s practice is to estab- to collect evidence located overseas. Particularly in recent years, the lish the existence of an agreement through direct evidence. Federal law, DOJ has increased its scrutiny of foreign cartels, and frequently relies however, does permit civil plaintiffs to use circumstantial evidence to on information shared among international agencies in preparing to establish the existence of an agreement. prosecute foreign defendants. This is particularly true for (but is not limited to) the jurisdictions with which the United States has entered Appeal process into MLATS, ACAs or MOUs. 18 What is the appeal process? Where provided for by treaty, the DOJ may seek extradition of individuals from foreign jurisdictions. Extradition had been largely theo- Defendants have the right to appeal a guilty verdict in a criminal trial. retical in antitrust cases because most treaties contain a dual criminality Both plaintiffs and defendants have the right to appeal adverse rulings requirement, but the risk of extradition has increased over time as more in civil cases. The government may not appeal an acquittal of a criminal jurisdictions around the world have criminalised cartel conduct. In 2014, defendant because of the constitutional prohibition of double jeopardy. the DOJ successfully extradited an Italian national from Germany on a In the federal court system, a trial takes place at the district-court charge of participating in a conspiracy to rig bids, fix prices and allocate level. Appeals from the trial decision are taken to the federal circuit market shares for sales of marine hose sold in the United States and Court of Appeals for the geographic region in which the trial court sits. elsewhere. Appellate courts give great deference to trial courts' findings of fact, The DOJ may also place an individual target of a grand jury inves- overturning them only when they are erroneous. Questions of law, by tigation on Interpol’s red notice list. Where extradition is not possible, contrast, are reviewed de novo, meaning the appellate court considers and those individuals decline to voluntarily surrender to US jurisdiction, the law as if for the first time. The right to appeal is generally lost unless listing on a red notice will expose the individual to detention and extra- timely asserted, and the windows in which appeals must be noticed are dition at the borders of the 190 participating countries. Obtaining a red extremely short. For civil litigants, the deadline to appeal is usually 30 notice requires the issuance of a valid national arrest warrant, but not days from entry of the judgment or order appealed from; for criminal proof that the individual is guilty of any crime. There is no time limit on defendants, the deadline is 14 days from the date of entry of judgment, a red notice, so, in effect, listing on a red notice may indefinitely confine or from the filing of the government's notice of appeal, whichever is individuals to their home countries. Some commentators have criticised later (Fed R App P 4(a)(1)(A), 4(b)(1)(A)). From the circuit court, appeals the DOJ’s use of red notices as a violation of due-process rights because are taken to the US Supreme Court. Supreme Court review is discre- it amounts to the imposition of a sanction without a trial. tionary, and only a very small proportion of cases seeking review every year are ultimately heard.

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SANCTIONS specific antitrust offence is bid rigging, or when the affected volume of commerce exceeds certain thresholds starting at US$1 million. The Criminal sanctions judge may then consider aggravating or mitigating factors in adjusting 19 What, if any, criminal sanctions are there for cartel activity? the time up or down, such as whether the individual abused a position of trust, or participated in the obstruction of justice (Guidelines, sections Both corporations and individual defendants face severe sanctions for 3B1 and 3C1). Concerning individual criminal fines, the Guidelines cartel activity under the US antitrust laws, including high financial penal- suggest beginning amounts corresponding to 1 to 5 per cent of the ties and, for individuals, imprisonment. For corporations, the Sherman affected volume of commerce but no less than US$20,000. The judge Act imposes a maximum fine of US$100 million per offence. For individ- may then consider aggravating or mitigating factors in setting the fine, uals, the maximum is US$1 million, plus up to 10 years imprisonment. considering the extent of the defendant's participation in the cartel and There is no minimum fine for either corporations or individuals, nor is the role he or she played, and whether and to what extent the defendant there a minimum prison term. personally profited from the scheme, including through bonuses, The US$100 million cap has been surpassed in practice, however. promotions, or other career enhancements. Individuals who cannot The Alternative Sentencing Act (18 USC section 3571) may permit penal- pay the fine are sentenced to community service, which the Guidelines ties to exceed the statutory maximum. A defendant may be fined up to recommend should be 'equally as burdensome as a fine' (Guidelines, twice its gross pecuniary gain from the criminal conduct, or twice the section 2R1.1, application note 2). victim's gross pecuniary loss. At least one federal district court has held For convicted corporations, the Guidelines recommend a 'base fine' that if a fine above the US$100 million cap is sought, the government equal to 20 per cent of the affected volume of commerce. This 'base fine' must prove the pecuniary gain or loss beyond a reasonable doubt (US is then multiplied according to a 'culpability score', which is calculated v AU Optronics Corp, No. C 09-00110 SI, 2011 WL 2837418, at *4 (NDCA based on factors including the firm's previous criminal history, whether 18 July 2011)). In that case, the judge imposed a fine of US$500 million. the firm tolerated the activity, whether it has or will implement anti- Total annual criminal penalties exceeded US$1 billion for four years in a trust compliance programmes or policies, evidence of obstruction of row, from 2012 to 2015, and topped US$3.6 billion in 2015 alone. These justice, and self-reporting. The minimum multiplier is 0.75, but the final levels then dropped sharply in 2016 to US$399 million, largely because fine is usually the result of extensive negotiation as part of the plea- of the conclusion of several major investigations during the prior year. bargaining process. Prison sentences for individuals do not in practice approach the statutory maximum of 10 years. Few individuals take the risk of a Compliance programmes criminal trial, preferring to accept a reduced sentence in exchange for 22 Are sanctions reduced if the organisation had a compliance a guilty plea and a cooperation commitment. Prison sentences averaged programme in place at the time of the infringement? 22 months between 2010 and 2016. In July 2019, the DOJ updated its Evaluation of Corporate Compliance Civil and administrative sanctions Programs in Criminal Antitrust Investigations to credit companies with 20 What civil or administrative sanctions are there for cartel effective compliance programmes. Specifically, the DOJ states that activity? having an effective compliance programme can result in the DOJ recom- mending a fine reduction to the sentencing judge. The recommended The Department of Justice (DOJ) may seek equitable injunctive reme- fine may be within the range provided by the Guidelines or may be a dies for cartel activity via civil actions (15 USC section 4) but has no downward departure from the Guidelines. The DOJ does not have a power to seek civil fines. The DOJ may, however, seek civil damages formula for determining what reduction if any, it will recommend. in cases in which the US government is a victim of the conduct under section 4A of the Clayton Act. The DOJ's actions rarely proceed to trial Director disqualification and are commonly resolved by consent usually requiring the 23 Are individuals involved in cartel activity subject to orders defendant to cease the problematic conduct or impose other internal prohibiting them from serving as corporate directors or changes in response to the government's concerns. The Federal Trade officers? Commission is similarly limited to equitable remedies, including injunc- tive relief and disgorgement. The US antitrust laws do not subject individuals charged with or convicted of antitrust violations to orders prohibiting them from Guidelines for sanction levels serving as corporate directors or officers. The Securities and Exchange 21 Do fining or sentencing principles or guidelines exist? If yes, Commission’s regulations, however, do provide for disqualification of, are they binding on the adjudicator? If no, how are penalty among others, corporate directors or officers upon conviction of any levels normally established? What are the main aggravating felony or misdemeanour in connection with the purchase or sale of and mitigating factors that are considered? any security, which may be read to include antitrust violations tied to the purchase or sale of securities (Rule 262(a)(1), Rule 503(a)(1) of The Federal Sentencing Guidelines (the Guidelines) apply to both indi- Regulation CF and Rule 506(d)(1) (i)). Equally significantly, in selecting vidual and corporate violators of the antitrust laws. The Guidelines are directors and senior-level officers, corporations generally look for not binding on federal judges (US v Booker, 543 US 220, 226-27 (2005)), candidates with a strength of character, inquiring minds and a reputa- although ‘respectful consideration’ to the Guidelines must still be given tion for good judgement and wisdom. It is difficult to conceive of how a (Pepper v US, 562 US 476, 490 (2011)). The full text of the Guidelines is corporation could continue to rely on a director or officer who is subject available online from the US Sentencing Commission’s website. to an order in a cartel case – that is, someone who had participated in In recommending the appropriate prison sentence for an indi- cartel activities and either been convicted or is a cooperating witness – vidual defendant, the Guidelines assign a ‘base offence level’ to a crime. without exposing the corporation to liability or increased criticism from For antitrust violations, the base offence level is 12, which results in activist investors or corporate gadflies. a starting range of 10 to 16 months’ imprisonment. The Guidelines further recommend increases to the base offence level when the www.lexology.com/gtdt 299 © Law Business Research 2020 United States Dechert LLP

Debarment antitrust claims in Associated General Contractors of California, Inc v 24 Is debarment from government procurement procedures California State Council of Carpenters, 459 US 519 (1983) (AGC). In AGC, automatic, available as a discretionary sanction, or not the court established a balancing test to determine the standing; namely: available in response to cartel infringements? • the directness of the plaintiff's injury; • the existence of more direct victims of the antitrust violation; Debarment of federal contractors from government procurement • the potential for duplicative recovery; and procedures is available as a discretionary sanction in response to cartel • the likelihood that apportionment of damages would be overly infringements. The Federal Acquisition Regulation System governs complex or speculative. the process through which government agencies procure goods and services. The agency head or his or her designee may determine Purchasers that acquired the affected product from competitors of the whether to debar a contractor convicted of a violation of federal or cartel members who are not themselves members of the cartel do not state antitrust laws relating to the submission of offers (48 CFR section have the standing to seek damages from cartel members on the theory 9.406-1, -2). Contractors that have been found liable in a civil enforce- that it was the cartel members conduct that allowed the non-cartel ment proceeding may also be debarred. Whether to impose the sanction competitors to take advantage of the increased prices (an 'umbrella and for how long requires the debarring official to consider both aggra- damages' theory). vating and mitigating factors, but the length of debarment usually As a practical matter, state-law claims brought as class actions will should not exceed three years (ibid at section 9.406-4). Suspension from be consolidated into the federal multi-district litigation under the Class government contracts is also available as a sanction before conviction Action Fairness Act of 2005. or civil judgment. A contractor may be suspended for the duration of Section 4 of the Clayton Act provides for a private right of action an investigation and any associated legal proceedings on suspicion of to enforce section 1 of the Sherman Act. The Clayton Act entitles or indictment for antitrust violations unless proceedings have not been successful antitrust plaintiffs to treble damages, calculated based on initiated after 18 months (ibid). the amount of overcharge the plaintiff paid as a result of the cartel Unless they have previously been convicted, contractors must activity, and also to compensate for their attorneys' fees and associated receive notice and an opportunity to be heard before being debarred. costs of litigation. Defendants in private civil suits face joint and several Suspension requires notice but may be imposed before being heard liability, meaning that a single defendant could find itself responsible (ibid at sections 9.406-3, 9.407-3). The debarring official may impute the for the total damages for the entire cartel, trebled, plus attorneys' fees conduct of the contractor’s officers, directors, shareholders, partners, and costs. While damage claims and even awards against defendants employees, other associated individuals or joint venture partners to the may be enormous, particularly in the context of class actions, no indi- contractor, and its conduct may likewise be imputed to them (ibid at vidual plaintiff may recover more than its actual damages, trebled. Civil sections 9.406-5, 9.407-5). trials are rare and settlements are common because of the in terrorem effect that results from the prospect of treble damages and joint and Parallel proceedings several liability. Recent class-action settlements routinely exceed 25 Where possible sanctions for cartel activity include criminal US$100 million. The largest antitrust settlement in history, in the Visa- and civil or administrative penalties, can they be pursued Mastercard antitrust litigation, was US$27 billion. in respect of the same conduct? If not, when and how is the The Clayton Act does not provide a remedy for successful defend- choice of which sanction to pursue made? ants to recover their costs of litigation.

The DOJ does not pursue the same defendant for the same conduct Class actions in both criminal and civil proceedings. Proof of a criminal violation 27 Are class actions possible? If so, what is the process for such requires knowledge and intent. Where such evidence is weak, the DOJ cases? If not, what is the scope for representative or group may choose not to prosecute criminally. That decision can be made actions and what is the process for such cases? before or during an investigation. Likewise, where a case presents novel issues of law or fact, the DOJ may opt instead to pursue civil remedies Most private civil antitrust lawsuits are brought as class actions under (Antitrust Division Manual at III–12). rule 23 of the Federal Rules of Civil Procedure. In a class action, a repre- sentative plaintiff or group of plaintiffs sues on behalf of all similarly PRIVATE RIGHTS OF ACTION situated plaintiffs. Classes and subclasses of plaintiffs may be defined based on geographic location, product purchased or characteristics of Private damage claims the plaintiffs themselves. The class format allows for enormous efficien- 26 Are private damage claims available for direct and indirect cies for plaintiffs, enabling them to establish liability for the entire class purchasers? Do purchasers that acquired the affected at once, to avoid inconsistent findings of fact or of law, and product from non-cartel members also have the ability to to define a clear process for establishing damages for each plaintiff. bring claims based on alleged parallel increases in the Where individual damages are small and not worth the cost of litigation, prices they paid (‘umbrella purchaser claims’)? What level of the efficiencies of the class format allow victims of cartel behaviour the damages and cost awards can be recovered? possibility of recovery when it would otherwise have been infeasible. Rule 23 sets forth the standards for courts to assess whether a Direct purchasers are preferred plaintiffs under the antitrust laws and claim may be adjudicated on a class-wide basis. To qualify for class federal precedent. The Supreme Court’s holding in Illinois Brick Co treatment, plaintiffs must plead and prove the following rule 23 factors: v Illinois, 431 US 720 (1977) bars indirect purchasers from asserting • numerosity (that the class is so numerous that joinder of every federal antitrust claims based on claims that direct purchasers 'passed individual plaintiff is impracticable); on' the overcharge. Many states, however, have enacted 'Illinois Brick • commonality (that there are questions of law or fact common to repealer statutes', to provide standing for indirect purchasers to bring the class); claims under state antitrust and unfair competition laws. The Supreme • typicality (that the claims or defences of the class representatives Court further limited the standing of indirect purchasers to assert are typical of the class); and

300 Cartel Regulation 2021 © Law Business Research 2020 Dechert LLP United States

• adequacy of representation (that the class representatives will Subsequent cooperating parties adequately represent the interests of the class). 29 Is there a formal programme providing partial leniency for parties that cooperate after an immunity application has been Also, plaintiffs must prove that common questions of law and fact will made? If so, what are the basic elements of the programme? predominate over any individual questions and that the class action If not, to what extent can subsequent cooperating parties device is a superior method for adjudicating the dispute. In many anti- expect to receive favourable treatment? trust class actions, the key issue for class certification is demonstrating whether plaintiffs can establish injury and damages on a class-wide Formal leniency is available only to the first-in applicant, and no formal basis. The class certification phase is a significant bar for plaintiffs leniency programme exists for cooperating parties who are not the leni- to clear, requiring the court to rigorously assess expert opinions and ency applicant. Under Federal Sentencing Guidelines (the Guidelines), factual evidence gleaned from discovery, often resulting in multi-day however, cooperation is a mitigating factor that judges may consider in evidentiary hearings. See In re Hydrogen Peroxide Antitrust Litigation, sentencing. Similarly, the DOJ has the discretion to treat cooperating 552 F3d 305 (3d Cir 2008). parties with greater leniency during an investigation or the plea- Participation in the class is not compulsory. Certain putative class bargaining process. members may elect to opt-out and pursue their own claims parallel to The DOJ also has the discretion to enter into non-prosecution agree- the class, usually cooperating with class counsel on certain discovery or ments (NPAs) and deferred prosecution agreements (DPAs). In practice, drafting efforts that jointly benefit them, but with the power to diverge NPAs and DPAs are rarely used in the cartel context because of the from the class in issues of strategy, discovery, other litigation processes existence of the DOJ’s leniency programme. In rare instances, however, and settlement. Such opt-out plaintiffs are usually corporations or indi- applicants who were not ‘first in’ for leniency have received DPAs as viduals with large damages, who do not wish to defer to or be bound by a reward for their efforts in cooperating with the DOJ’s investigation. decisions or settlements made by class counsel on behalf of the rest of NPAs remain a disfavoured approach for all but the ‘first in’ applicant; the class. however, the DOJ recently updated their policies to allow prosecutors to grant DPAs (although not NPAs) to cooperating companies with effective COOPERATING PARTIES compliance programmes (consistent with the DOJ’s guidance on compli- ance programmes) in place. A compliance programme in and of itself Immunity does not guarantee a DPA, but an effective compliance programme will 28 Is there an immunity programme? If so, what are the basic be taken into account when choosing whether to grant a DPA. NPAs and elements of the programme? What is the importance of being DPAs are more commonly granted to individuals who cooperate with the ‘first in’ to cooperate? government’s investigation, rather than corporations.

Individuals and corporations may apply for leniency through the Going in second Department of Justice’s (DOJ) leniency programme. If the application 30 How is the second cooperating party treated? Is there an is granted, the applicant receives full immunity from criminal prosecu- ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, tion. Applicants that satisfy the requirements of the Antitrust Criminal how does it operate? Penalty Enhancement and Reform Act (ACPERA), Pub L No. 108-237, 118 Stat. 661 (22 June 2004), may also become eligible for benefits in To receive amnesty under the DOJ’s leniency programme, the applicant private civil cases, including a reduction from treble to single damages, must be the first to file. There is no formal leniency available for subse- and the elimination of joint and several liability. The requirements under quent cooperating parties. ACPERA include cooperation with plaintiffs in civil actions. In October There is no significance to being ‘second in’, although, generally, 2020, ACPERA's sunset provision was repealed and the act was reau- the earlier a company begins cooperating with the government the thorised and signed into law. greater the potential it has to receive a downward departure from the To obtain leniency, an applicant must ordinarily be the first to fine recommended under the Guidelines. report illegal activity to the government, before the commencement of The DOJ’s ‘amnesty plus’ programme is designed to create an incen- an investigation (Type A leniency). This ‘first in’ requirement is true for tive for later-cooperating parties to confess wrongful conduct outside both individuals and corporations. The applicant must not have been the scope of the existing investigation. Under amnesty plus, if a later- the ringleader of the cartel, must have promptly and effectively termi- cooperating party applies for leniency for one or more other cartels, nated its participation in the cartel, must fully disclose all relevant facts that party, in addition to receiving full leniency for those separate cartel regarding the illegal activity and fully cooperate with the government violations, would receive a considerable discount on any criminal fine investigation, and must make restitution to victims. Further, the DOJ assessed concerning the initial cartel violation. This contrasts with the must determine that granting leniency would not be unfair to others. DOJ’s ‘penalty plus’ policy, under which the government will seek fines Even if an investigation has already begun, obtaining leniency may still and prison sentences at the upper end of the range recommended by be possible for a first-in applicant as long as all other requirements are the Guidelines if a company was aware of additional antitrust violations met and the DOJ does not already have evidence that warrants a convic- but chose not to report them. tion (Type B leniency). For individual applicants who do not meet all the requirements, Approaching the authorities leniency may still be possible at the discretion of the DOJ, but it is 31 Are there deadlines for initiating or completing an application usually more limited. for immunity or partial leniency? Are markers available and Further details about the DOJ’s leniency programme may be found what are the time limits and conditions applicable to them? on the DOJ’s website. To preserve its position as the first filer, a company that finds evidence of criminal cartel behaviour should contact the DOJ as quickly as possible to obtain a marker. The marker is then valid for a certain time (often 30 days, although this may be extended or shortened on a www.lexology.com/gtdt 301 © Law Business Research 2020 United States Dechert LLP

case-by-case basis) to allow the company to perfect its application. This Settlements process usually involves a rapid and comprehensive internal investiga- 34 Does the investigating or prosecuting authority have the tion, involving document collection and review and witness interviews. ability to enter into a plea bargain, settlement, deferred The decision of whether to seek amnesty is highly fact- and prosecution agreement (or non-prosecution agreement) or company-specific. If the evidence of criminal activity is unambiguous other binding resolution with a party to resolve liability and and the company is prepared to devote the considerable human and penalty for alleged cartel activity? What, if any, judicial or financial resources demanded of an amnesty applicant as part of its other oversight applies to such settlements? obligation to cooperate fully, seeking amnesty quickly may be advis- able. If the evidence is ambiguous or weak, or the company judges that Most criminal cartel prosecutions are resolved via plea agreement the risks and burdens of cooperation outweigh the potential benefits, rather than at trial. The parties typically negotiate the scope of the amnesty may not be the company’s strongest option. Given the govern- defendant’s agreement, often using the Guidelines as a starting point for ment’s high burden to prove criminal liability beyond a reasonable doubt, negotiations. The negotiated agreement must be presented to the court if strong defences (eg, jurisdictional or statute of limitations defences) for approval. Judges have the discretion to approve or modify such exist, the better option may be to put the government to its proof. proposed agreements but usually defer to the DOJ’s recommendation. If amnesty is unavailable, the company may face the decision whether to plead guilty or to take its risks at trial. As with the deci- Corporate defendant and employees sion whether to seek amnesty, the decision whether to plead is highly 35 When immunity or partial leniency is granted to a corporate defendant- and situation-specific, requiring consideration of the strength defendant, how will its current and former employees be of the evidence, the strength of any available defences, and the risks treated? associated with accepting a plea, which could expose the defendant to liability in follow-on civil cases. When a corporate defendant receives immunity under the DOJ’s leni- ency programme, current employees, officers and directors will also Cooperation receive immunity if they admit any wrongdoing and continue to assist 32 What is the nature, level and timing of cooperation that is the government’s investigation. The DOJ also has the discretion to required or expected from an immunity applicant? Is there any include specifically named former employees, officers and directors in difference in the requirements or expectations for subsequent the grant of immunity. cooperating parties that are seeking partial leniency? Where a company agrees to a plea bargain, its directors, officers and employees will similarly receive immunity from future prosecution, Leniency recipients must cooperate fully and transparently with the save for those who have been carved out of the plea. The DOJ’s practice DOJ’s investigation in exchange for complete immunity. Also, if a leni- is to carve out several targets of the investigation who may be indicted ency recipient satisfies the ACPERA requirements (including cooperation for wrongful conduct associated with the violations outlined in the plea with the civil plaintiffs), it may be eligible for reduced civil damages agreement. Not all carved-out individuals are indicted and fewer still are (single, rather than treble), and may avoid joint and several liability. ultimately prosecuted. These carved-out individuals are often, although There are no formal requirements defining the level of coopera- not always, higher-ranking executives who held pricing authority and tion expected of subsequent cooperating parties. Ordinarily, the DOJ will actively promoted the cartel activity, whose prosecutions may serve request desired documents or access to witnesses, and then the party’s as a warning to others. The DOJ may also choose to carve out indi- response will be the product of negotiation. If a party pleads guilty in viduals who attended cartel meetings and entered into the agreements exchange for a reduced sentence, cooperation requirements are usually on behalf of the company, against whom the documentary evidence is outlined in the plea agreement. often the strongest. The DOJ generally seeks to prosecute individuals who were in a position to stop the illegal conduct, both because of their Confidentiality knowledge of the cartel and their position of authority. In the past year, 33 What confidentiality protection is afforded to the immunity the DOJ has indicted two CEOs in connection with its cartel enforcement applicant? Is the same level of confidentiality protection activities. applicable to subsequent cooperating parties? What information will become public during the proceedings and Dealing with the enforcement agency when? 36 What are the practical steps for an immunity applicant or subsequent cooperating party in dealing with the The DOJ must keep confidential the identity of the applicant, the fact enforcement agency? it has been granted amnesty, and the substance of any negotiations with the applicant or subsequent cooperating parties. Depending on the The process of applying for leniency, once the decision is made to do so, nature of the cartel and the parties involved, however, the identity of the moves extremely quickly. Typically, the application begins with a phone leniency applicant often does not remain a secret, at least among the call by counsel to the DOJ, to establish the applicant’s marker as the other defendants. Plea agreements, by contrast, and the cooperation first to file. Usually, some information regarding the nature of the illegal provisions contained within them, are made public. conduct and the evidence supporting it must be shared at this time, but In the related civil litigation, both the fact of amnesty and the merely putting in the marker does not require disclosure of full details ordinary-course materials produced by the recipient may become of the scope of the cartel and the applicant’s involvement. If the agency discoverable. Parties usually negotiate strict protective orders limiting accepts the marker, the applicant must move rapidly through an internal the use of such materials to the litigation and designate documents with investigation, including collection and review of documents and witness varying levels of confidentiality restrictions during discovery. If the case interviews, to prepare a formal proffer of evidence to the DOJ estab- goes to trial, the confidentiality of these materials will be determined on lishing that the company satisfies the requirements to obtain leniency. a document-by-document basis, although given the public interest in the Successful applicants will receive a conditional letter of amnesty, setting adjudicative process, it is often impossible to prevent disclosure of all forth the requirements of cooperation by which the company must abide documents. Trials are typically open to the public. to maintain its immunity. Compliance with these requirements is strict

302 Cartel Regulation 2021 © Law Business Research 2020 Dechert LLP United States and inflexible, necessitating complete transparency with the agency and to represent both a parent and subsidiary company in single litigation, the immediate and full disclosure of all evidence of illegal cartel activity. because generally, these entities share a unity of interest, such unity is Failure to comply may result in the loss of immunity. far murkier or non-existent in the case of unaffiliated cartel participants. In all dealings with the enforcement agencies, complete candour In practice, these joint representations rarely occur. In the criminal and truthfulness are essential. Immunity will not be granted for illegal context, joint representations may not satisfy the defendant’s Sixth activity that is not disclosed. Equally important is to prevent obstruction Amendment right to effective assistance of counsel. Different lawyers of justice in the form of intentional or even careless destruction of docu- or teams of lawyers within a firm may sometimes represent different ments or other evidence. Penalties for obstruction of justice are severe, defendants in the same matter with appropriate disclosure and waivers. sometimes exceeding those of the underlying crime itself, and may be pursued independent of or parallel to penalties for the initial antitrust Payment of penalties and legal costs violation. 40 May a corporation pay the legal penalties imposed on its employees and their legal costs? DEFENDING A CASE Legal penalties and legal costs are treated differently for indemnifica- Disclosure tion purposes. It is not permissible for a corporation prospectively to 37 What information or evidence is disclosed to a defendant by agree to indemnify an employee for future illegal activity. In some cases, the enforcement authorities? however, indemnification for past criminal activity has been allowed. It is permissible for a company prospectively to agree to indemnify an The enforcement authority is required to disclose evidence or informa- employee for legal defence costs. Most company by-laws permit such tion favourable to a criminal defendant, including evidence that would indemnification. tend to prove innocence, permit impeachment of government witnesses, or mitigating evidence that would tend to reduce a criminal sentence Taxes (Brady v Maryland, 373 US 83, 87-88 (1963)). Generally, the Department 41 Are fines or other penalties tax-deductible? Are private of Justice (DOJ) provides defendants with the majority of its investiga- damages payments tax-deductible? tive materials anyway. Under certain circumstances, the government must also disclose any statements of its witnesses that relate to the Punitive payments to governments or their agencies or instrumentali- subject matter on which the witness testified (Jencks Act, 18 USC ties for violations of law, including fines and penalties, are generally section 3500). not tax-deductible. These include payments settling potential liability for fines or penalties, or amounts forfeited as collateral posted in connection Representing employees with proceedings where fines or penalties are possible. Compensatory 38 May counsel represent employees under investigation in damages paid to a government or government agency or instrumen- addition to the corporation that employs them? When should tality are usually not considered to be a fine or penalty. a present or past employee be advised to obtain independent Private damages awards or settlements may be considered busi- legal advice or representation? ness expenses under the tax laws – and therefore may be deductible, to an extent. It may also be possible to structure settlements in ways If there is no conflict or potential conflict of interest, counsel may that maximise the ability of the payer to deduct or minimise the tax simultaneously represent both a corporation and its employees that obligation incurred by the recipient. Understanding the tax implications are under investigation. During a government investigation, however, of any penalty, settlement, compensatory damages award or other such conflicts may arise that necessitate obtaining separate counsel for payment will require the advice of a tax specialist. the individuals. This can occur when the DOJ identifies an individual as a target of the investigation, and the individual’s interests and the International double jeopardy company’s interests diverge, each potentially having an incentive to 42 Do the sanctions imposed on corporations or individuals take place responsibility for the illegal activity on the other. It may also occur into account any penalties imposed in other jurisdictions? In during the company’s internal investigation or preparations for litigation private damage claims, is overlapping liability for damages in when previously unknown evidence of the individual’s illegal activity other jurisdictions taken into account? emerges. The existence of conflicts is not unusual, and must continu- ally be assessed on a case-by-case basis throughout the investigation. The DOJ does not recognise a principle of international double Occasionally, the DOJ will demand that an individual be provided sepa- jeopardy, meaning that it does not consider the fact that another juris- rate counsel, either because a genuine conflict exists or as a strategic diction may have prosecuted a defendant for a crime as a bar to US move to try to obtain greater cooperation from the individual. There enforcement. Generally speaking, however, the DOJ does in certain may also be reasons apart from conflicts of interest in which it may be circumstances consider the enforcement actions taken by other juris- advisable to obtain separate counsel for an individual, especially if that dictions in recommending fines or other sanctions. For example, the person expresses that this is his or her desire. Ultimately, the decision DOJ has recommended in some plea agreements that time served in whether separate counsel is necessary belongs to the lawyer and the the foreign jurisdiction be counted as time served toward a defendant’s clients, not the DOJ. US sentence. In civil cases, double recovery by a plaintiff is generally not Multiple corporate defendants permitted, and private damage awards will be reduced by amounts a 39 May counsel represent multiple corporate defendants? Does plaintiff receives from other parties, including amounts paid in settle- it depend on whether they are affiliated? ments. The principle of collateral estoppel may also bar a plaintiff from maintaining a claim in the United States against a defendant against It is generally inadvisable for the same counsel to represent multiple whom it obtained a judgment on the same facts in a foreign jurisdiction. corporate defendants in a single civil case when those defendants are not part of a single corporate family. While it is common for counsel www.lexology.com/gtdt 303 © Law Business Research 2020 United States Dechert LLP

Getting the fine down 43 What is the optimal way in which to get the fine down?

Approaches for reducing fines vary from case to case and party to party. Until recently, the DOJ did not typically consider the presence of a pre-existing compliance programme to be a strong mitigating factor that would merit a significantly reduced fine. However, in July of 2019, the DOJ updated their ‘Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations’ to credit companies with effective Steven E Bizar compliance programmes. In addition to allowing for reduced sentencing, [email protected] an effective compliance programme can lead to a significantly reduced Julia Chapman fine. Compliance initiatives that a company takes after an investiga- [email protected] tion commences may contribute to lowered fines, but this is one factor among many, several of which are beyond the control of the defendant once the investigation has begun, such as the nature of the past criminal Cira Centre conduct itself or the volume of commerce affected. One of the mean- 2929 Arch Street Philadelphia, PA 19104-2808 ingful ways a defendant may be able to reduce the fine is through early United States cooperation, although that decision may not always be advisable for all Tel: +1 215 994 4000 defendants. Adopting an effective compliance programme is the surest Fax: +1 215 994 2222 method to uncovering cartel activity in real-time, which can put the www.dechert.com company in a position to apply first for leniency. Generally, however, because fines are set through settlement negotiations, the best way to secure a lower fine is to negotiate from a position of strength. This requires the development of a robust expedited review process for proposed competitor collaborations related defence from the outset, preserving the company’s right to contest the to covid-19. Examples of collaborative efforts that may not violate the government’s case at trial, while at the same time looking for opportu- antitrust laws, depending on the details of the proposal, include tempo- nities to cooperate proactively with the government in exchange for a rary combined production and distribution, shared equipment, medical reduced fine. supplies, raw materials, collaborative research and development and participation in joint purchasing arrangements. In their joint state- UPDATE AND TRENDS ment, the FTC and DOJ announced a new voluntary guidance review process for proposed collaborative efforts, and committed to respond Recent cases within seven calendar days after receiving all necessary information for 44 What were the key cases, judgments and other developments collaborations related to ‘public health and safety’. Both the FTC and of the past year? DOJ also committed to responding ‘expeditiously’ to all other covid-19 requests. Interested parties are required to explain how the collabora- In Federal Trade Commission v Abbvie (3d Cir. 2020), the Third Circuit tion is related to covid-19 and provide a detailed written proposal, which Court of Appeals held that the Federal Trade Commission (FTC) lacked can be drafted with the assistance of antitrust counsel. the authority to secure disgorgement of profits as a remedy in antitrust Despite this expedited review process, both the DOJ and FTC cases. Specifically, the Court found that section 13(d) of the Federal noted in their statement that they will pursue civil and criminal viola- Trade Commission Act, which allows courts to ‘enjoin’ antitrust viola- tions of the antitrust laws against individuals and businesses that are tions, does not create the authority to secure disgorgement. using the covid-19 pandemic as an opportunity to harm competition. For this reason, it is critical to obtain antitrust advice before attempting to Regime reviews and modifications collaborate with competitors. 45 Are there any ongoing or anticipated reviews or proposed changes to the legal framework, the immunity/leniency programmes or other elements of the regime?

Not applicable.

Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

Efforts to respond to supply shocks or other consequences stemming from the covid-19 pandemic may give companies reason to collaborate with competitors in a way that benefits the public, but that simultane- ously involves antitrust risk. To facilitate procompetitive collaborations that may be helpful to expand capacity, develop new products, or bring goods and services to individuals and communities, the Antitrust Division of the Department of Justice (DOJ) and the FTC jointly announced an

304 Cartel Regulation 2021 © Law Business Research 2020 Vietnam

Nguyen Anh Tuan, Tran Hai Thinh and Tran Hoang My LNT & Partners

LEGISLATION AND INSTITUTIONS The Penal Code 2015 (as amended), which effectuated on 1 January 2018, is another noteworthy development because for the first time it Relevant legislation criminalises certain cartels and imposes criminal liabilities on commer- 1 What is the relevant legislation? cial entities.

The Competition Law 2018, which came into force on 1 July 2019, is the Substantive law primary legislation regulating cartel activities in Vietnam. Competition- 4 What is the substantive law on cartels in the jurisdiction? related provisions and industry-specific infringements and exemptions can also be found in specialised instruments such as Insurance Business The Competition Law 2018 provides for a non-exhaustive list of restric- Law 2000, Telecommunications Law 2009, and the Law on Credit tive agreements, some of which are illegal per se and some subject Institutions 2010. to the substantial lessening of competition test (articles 11 and 12 The Penal Code 2015 (as amended) is the sole legislation governing respectively). criminal cartel offences. Accordingly, the following behaviour is strictly prohibited among horizontal and vertical cartels: Relevant institutions • bid rigging; 2 Which authority investigates cartel matters? Is there • restriction of non-cartel participants’ market access or business a separate prosecution authority? Are cartel matters development; and adjudicated or determined by the enforcement agency, a • removal of non-cartel participants from the market. separate tribunal or the courts? The following behaviour is strictly prohibited among horizontal cartels The National Competition Commission (NCC) is Vietnam’s principal and conditionally prohibited (ie, are only prohibited if they actually or competition . Under the purview of the Ministry of Industry and potentially restrict competition) among vertical cartels: Trade, the NCC amalgamates the investigative and adjudicative func- • price-fixing; tions formerly discharged by the Vietnam Competition and Consumer • allocating market share or customers; and Authority (VCCA) and Vietnam Competition Council respectively. The • restricting output. NCC is in charge of administrative competition violations. Criminal competition violations are investigated by the police, pros- The following behaviour is conditionally prohibited among horizontal ecuted by the procuracy (ie, public prosecutors) and adjudicated by the and vertical cartels: courts. There is no separate investigative body, tribunal or court dealing • restrictions on research and development; with criminal competition violations. • agreements to impose certain contractual conditions on other businesses or forcing other businesses to accept obligations not Changes directly related to the subject matter of the contract; 3 Have there been any recent changes, or proposals for change, • agreements on ; to the regime? • agreements to limit the upstream or downstream markets; and • other restrictive agreements. The most significant change is the Competition Law 2018, which introduces, among other things, a shift in regulatory approach from ‘Restrictive agreement’ is defined as an agreement in any form which form-based to effect-based (ie, cartel violation is now assessed on the has or is capable of having a competition-restraining effect. As such, basis of its impact on competition rather than whether it falls within a informal exchanges such as instant messages or verbal conversa- statutorily prescribed list of prohibited conducts), a leniency policy, the tions can also be considered an agreement. Furthermore, information NCC, and a new merger control regime. exchange is also forbidden if it enables undertakings to engage in The government recently unveiled Decree 35/2020/ND–CP, which anticompetitive conducts. The NCC may in practice rely on such form provides for, among other matters, guidance on the substantial less- of agreement and other circumstantial evidence to ascertain a cartel ening of competition test (including safe harbours) and the competition violation. proceedings (the Guiding Decree). As for conditionally prohibited cartels, the NCC will assess Another decree providing for the formal establishment of the NCC whether they cause or are capable of causing a significant competition- is expected to promulgate later this year, although the exact date is not restraining impact on the basis of the factors stipulated in article 13.1 of publicly disclosed. the Competition Law 2018 and elaborated in article 11.2 of the Guiding Decree, namely: www.lexology.com/gtdt 305 © Law Business Research 2020 Vietnam LNT & Partners

• the individual and combined market share of the cartel participants; and include, among other things, public service companies and foreign • market barriers; businesses operating in Vietnam. When a person designated or approved • restrictive impact on R&D or technological advance; by or otherwise acting on behalf or at the direction of a corporate entity • impact on access to essential infrastructure; commits an offence, only the corporate is held liable for administrative • any increases in purchase prices or switching costs; and sanctions. For criminal sanctions, both individuals and corporates are • any control over sector-specific essentials. independently criminally prosecutable.

Article 11.3 of the Guiding Decree provides for safe harbours on the Extraterritoriality basis of the market share of the involved undertakings. Accordingly, 7 Does the regime apply to conduct that takes place outside the conditionally prohibited horizontal cartels will not be considered to have jurisdiction (including indirect sales into the jurisdiction)? If an actual or potential competition-restraining impact if the combined so, on what jurisdictional basis? market share of the participants is less than 5 per cent. For vertical cartels, the threshold is if the individual market share of each cartel Article 1 of the Competition Law 2018 widens the scope of governance. participant is less than 15 per cent. Accordingly, anticompetitive conduct outside of Vietnam will be caught if The Competition Law 2018 also provides for exemptions in certain such conduct has an actual or potential competition-restraining impact cases. In particular, except for bid rigging and the restrictive agree- on the domestic market. This is so irrespective of whether the foreign ments on the removal of non-participants from the market or on the entity has a presence in Vietnam. restriction of non-participants’ market access or business development, illegal cartels are eligible for an exemption for a maximum of five years Export cartels if they are beneficial to consumers and satisfy one of the conditions 8 Is there an exemption or defence for conduct that only affects provided in article 14.1 of the Competition Law 2018. customers or other parties outside the jurisdiction? Furthermore, as from 1 January 2018, under article 217 of the Penal Code 2015, the following cartels are criminally prosecutable if Export cartels which only affect the foreign markets are not subject they generate an illegal gain of at least 500 million Vietnamese dong or to the Competition Law 2018 because the legislation only applies to cause another undertaking a loss of at least 1 billion dong: cartels which cause or are capable of causing a restrictive impact on • restriction of non-participants’ market access or business the Vietnamese market. development; • removal of non-participants from the market; and Industry-specific provisions • the following horizontal cartels where the parties’ combined 9 Are there any industry-specific infringements? Are there any market share totals at least 30 per cent: industry-specific defences or exemptions? • price-fixing; • allocation of market or customers; Several pieces of industry-specific legislation, mainly in the banking and • output restriction; insurance sectors, do provide for industry-specific infringements and • R&D restriction; exemptions. article 14.2 of the Competition Law 2018 also recognises • agreements to impose certain contractual conditions on other that industry-specific agreements are to be conducted in accordance businesses; or with the relevant industry-specific legislation. • forcing other businesses to accept obligations not directly In particular, article 9.2 of the Law on Credit Institutions 2010 (as related to the subject matter of the contract. amended) prohibits anticompetitive conducts that are actually or poten- tially harmful to national monetary policies, the safety of the credit Bid rigging is prosecutable under a separate provision (article 222 of institution system, national interests or the lawful rights and interests Penal Code 2015) and only individuals can be held criminally liable. of others. Horizontal and vertical cartels on market division and fore- closure are illegal per se under article 10.4 of the Insurance Business Joint ventures and strategic alliances Law 2000 (as amended). Article 10.1 of the same however provides for 5 To what extent are joint ventures and strategic alliances exemptions for insurers and insurance brokers with respect to, among potentially subject to the cartel laws? other things, reinsurance, co-insurance, loss assessment and informa- tion exchange for risk management. Restrictive agreements are broadly defined and include agreements of any kind that have (actual or potential) substantial competition-less- Government-approved conduct ening impact. As such, joint ventures and strategic alliances may be 10 Is there a defence or exemption for state actions, caught by the Vietnamese cartel regime. government-approved activity or regulated conduct? However, it is noteworthy that under Vietnamese competition law a joint venture which resulted in the creation of a new independent legal According to article 8.1(a) of the Competition Law 2018, government- entity is deemed an economic concentration and thus will not be subject sanctioned or government-mandated actions are exempted from cartel to cartel laws. regulation in declared states of emergency. It follows that during a declared emergency crisis cartels are permitted if approved by or APPLICATION OF THE LAW AND JURISDICTIONAL REACH formed at the request of the competent authority.

Application of the law 6 Does the law apply to individuals, corporations and other entities?

The Competition Law 2018 applies to ‘undertakings’, which is defined as organisations and sole proprietorships conducting business activities,

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INVESTIGATIONS Interplay between jurisdictions 14 Which jurisdictions have significant interplay with your Steps in an investigation jurisdiction in cross-border cases? If so, how does this affect 11 What are the typical steps in an investigation? the investigation, prosecution and penalising of cartel activity in cross-border cases in your jurisdiction? A National Competition Commission (NCC) investigation can be initiated by whistle-blowers (via leniency programme), formal complaints from The authors have not observed any significant interplay with other aggrieved parties, or information from third parties on the potential jurisdiction in cross-border cases to date. Whether and to what existence of a restrictive agreement. extent interplay between jurisdictions affects the investigation remain In the event a party lodges a formal complaint, the NCC has seven to be seen. working days from receipt of the complaint to assess its validity and completeness before notifying the complainant and defendant. Then CARTEL PROCEEDINGS within 15 calendar days of such notification, the NCC will assess the substantive content of the complaint to either formally launch an inves- Decisions tigation or request the complainant to supplement further information. 15 How is a cartel proceeding adjudicated or determined? Alternatively, the NCC can at its own initiative commence a compe- tition probe within three years of the date on which the alleged cartel Once the investigation is concluded, the National Competition activity started if there are probable grounds to believe a cartel violation Commission (NCC) chairperson must establish a council comprising has been committed. of NCC members to decide on the case. The council may request the The time-limit for investigation is nine months for a typical cartel investigating body (ie, the Competition Investigation Agency) to conduct and one year for a complex case. During the course of the investigation, additional investigation for a maximum of 60 calendar days if the if there are indications of a criminal offence then the NCC shall transfer evidence is found insufficient to ascertain a cartel violation, or hold an the file to the competent authority (or authorities). investigative hearing if there is sufficient evidence; the hearing must be conducted in public unless the case involves sensitive matters such as Investigative powers of the authorities state secret or trade secret. Within 60 calendar days of its establish- 12 What investigative powers do the authorities have? Is court ment or receipt of the investigative report and conclusions on additional approval required to invoke these powers? investigation, the council must decide whether to impose sanctions on and, where necessary, apply remedies to the parties concerned. This The NCC is empowered to request information on the violation from rele- decision will be published on the NCC’s website for 90 consecutive days vant parties, collect information and conduct ‘investigative measures’ from its effective date. via its subordinate the Competition Investigation Agency, and request other competent authorities to temporarily seize evidence, facilities used Burden of proof to commit the violation, licences or practising certificates, search vehi- 16 Which party has the burden of proof? What is the level of cles, objects or premises. proof required? Neither the Competition Law 2018 nor the Guiding Decree elabo- rates on the meaning of ‘investigative measures’. It is also understood The burden of proof lies with the NCC in administrative cases, or public that the Competition Investigation Agency may also cooperate with prosecutors if the case is criminally prosecuted. If the offence is estab- other competent authorities to conduct a dawn raid on suspected under- lished, the onus will shift to the defendant to form a defence. The burden takings, although in practice the agency has never done so. Of note, also falls on the undertaking seeking exemption under article 14 of the court orders are not required to invoke these investigative actions and Competition Law 2018 to satisfy the provision. interim measures. Where the NCC has issued a decision on a competition case, the aggrieved party seeking to claim damages must establish that they in INTERNATIONAL COOPERATION fact incurred a loss or damage and such loss or damage was caused by the illegal cartel activity. In the absence of such decision by the NCC, in Inter-agency cooperation addition to proving losses and causation, the claimant must also prove 13 Is there cooperation with authorities in other jurisdictions? If that the defendant engaged in an illegal cartel activity. so, what is the legal basis for, and extent of, such cooperation? In respect of civil enforcement, the standard of proof is essentially balance of probabilities. In a criminal case, the standard of proof is more The Vietnam Competition and Consumer Authority (VCCA) has engaged onerous, and the evidence must satisfy the definition provided in article in various multilateral and bilateral cooperation programmes with inter- 86 of the Criminal Code Procedure 2015. Vietnam’s criminal justice national organisations and national competition watchdogs, ranging system however does not have any equivalence to the ‘beyond reason- from International Competition Network, UNCTAD, to OECD and Japan able doubt’ standard. Fair Trade Commission. For the time being, these programmes mainly focus on competition policymaking and enforcement experience. Circumstantial evidence Given the widened scope of the Competition Law 2018 to cover 17 Can an infringement be established by using circumstantial extraterritorial conduct, the National Competition Commission (NCC) is evidence without direct evidence of the actual agreement? expected to continue and reinforce cooperation on areas such as consul- tation and information exchange with its overseas counterparts to detect, Given that direct evidence is not always available, especially when it investigate and prosecute any potential cross-border infringements. comes to cartel activities, circumstantial evidence is usually accept- Most recently, VCCA officials participated in the 23rd and 24th ASEAN able to initiate an investigation into complaints by aggrieved parties or Experts Group on Competition and hosted the 20th meeting of the ASEAN whistle-blowers. However, circumstantial evidence alone may not be Committee on Consumer Protection and Related Meetings in 2019. sufficient to establish an offence in a criminal proceeding or to conclude that there exists an anticompetitive agreement prohibited by laws. www.lexology.com/gtdt 307 © Law Business Research 2020 Vietnam LNT & Partners

Appeal process • individuals will be fined from 1 billion to 3 billion dong, or subject to 18 What is the appeal process? a prison sentence from one year to five years; and • corporates will be fined from 3 billion to 5 billion dong, or subject A party may appeal against a decision by the NCC following a two- to suspension from six months to two years. phased process. As a secondary sanction in combination with any of the above primary Administrative complaint sanctions, individuals may also be fined from 50 million to 200 million The first phase, the administrative complaint, unfolds as follows. dong or prohibited from holding a position or practising for one to five Within 30 calendar days from the date of receipt of a decision on years. Corporates may be fined from 100 million to 500 million dong or the alleged infringement, any party dissatisfied with such decision, prohibited from conducting certain business(es), or mobilising capital either in part or in whole, may lodge a complaint to the NCC’s chair- for one to three years. person (complainant). With regard to bid rigging, an individual may be sentenced for up Within 10 calendar days of the date of receipt of such complaint, the to 20 years and forbidden from holding a position or practising for up to NCC’s chairperson must notify the complainant and concerned parties five years or confiscated of part or all of their assets. in writing of their decision whether to accept or refuse jurisdiction; in It is noteworthy that the leniency policy does not apply in case of the event of refusal, a reason must be clearly stated. criminal prosecution. Instead, a separate amnesty regime shall apply. Within five working days from the date of accepting jurisdiction, the As of this writing, the authors are not aware of any criminally pros- NCC chairperson shall establish a complaint resolution council, which ecuted cartels. comprises of himself or herself and the remaining NCC members who did not sit in the council adjudicating the infringement. Civil and administrative sanctions Within 30 calendar days for normal cases or 45 calendar days for 20 What civil or administrative sanctions are there for cartel complex cases from the date of its establishment, the council must issue activity? a decision resolving the complaint. The main administrative sanction is monetary fine (except where the Administrative litigation violator is a state agency, in which case the National Competition The second phase, the administrative litigation, commences when Commission (NCC) shall request the agency in question to cease the the appellant is still unsatisfied with the decision on resolution of the violation, take remedial actions and recompense). complaint and unfolds as follows: The maximum fine is 10 per cent of the violator’s total turnover in Within 30 calendar days of receiving the complaint resolution deci- the previous year for prohibited horizontal cartels, and 5 per cent for sion, an unsatisfied undertaking shall file a lawsuit against a part or the unlawful vertical cartels. In any event, the imposed administrative fine whole of such decision at a competent administrative court. cannot exceed the lowest level of criminal monetary fine. Within three months (in normal cases) or four months (in complex In addition to fines, the NCC may impose supplementary penalties cases) of acceptance, the court must issue the first instance judgment. (eg, confiscation of illegal gains) on and/or take remedial measures (eg, The time-limit may be prolonged if the first instance stage is temporarily removal of unlawful terms and conditions in agreements or commercial suspended, adjourned or otherwise delayed. transactions) against the violators depending on the nature and severity Any appeal must be made within 15 calendar days of pronounce- of the breach. ment of the first instance decision. The minimum fine for all types of prohibited cartels is 1 per cent Within three months (in normal cases) or five months (in complex the violator’s total turnover. cases) of acceptance, the court must issue the appellate judgment. Given that the current cartel regulation regime is in its early stage Similarly, the time-limit may also be prolonged due to any suspension, (Decree No. 75/2019/ND–CP on dealing with competition law violations adjournment or delay. only took effect from 1 December 2019), the authors have not observed any instance where a violator was fined under new regulations. As for SANCTIONS the expired Competition Law 2004, there were only two cases in which several undertakings were found to have engaged in prohibited cartels. Criminal sanctions The first case, a pupil insurance cartel, resulted in no fine because all 19 What, if any, criminal sanctions are there for cartel activity? participants had prematurely terminated the price-fixing agreement while the other, a 19-participant car insurance cartel, was fined a total With respect to criminally prosecutable cartels (except bid rigging), (including procedural fees) of 1.8 billion dong. primary penalties vary depending on the severity of the behaviour and whether the violator is an individual (eg, executives of the undertaking Guidelines for sanction levels participating in the illegal cartel) or corporate. Accordingly, if the cartel 21 Do fining or sentencing principles or guidelines exist? If yes, generates an illegal gain between 500 million and under 3 billion dong, or are they binding on the adjudicator? If no, how are penalty causes loss to a third party in the range of 1 billion to under 5 billion dong: levels normally established? What are the main aggravating • individuals will be fined from 200 million to 1 billion dong, or and mitigating factors that are considered? subject to a non-custodial sentence of up to two years, or a prison sentence from three months to two years; and Decree No. 75/2019/ND–CP provides for, among other things, general • corporates will be fined from 1 billion to 3 billion dong. principles for the calculation of administrative fine as well as compre- hensive lists of aggravating and mitigating factors. If the illegal gain generated from, or loss caused by, the cartel exceeds For each of the aggravating or mitigating factors, the violator shall the above thresholds, or if the cartel crosses either of the above thresh- respectively be given a fine increase or reduction of no more than 15 per olds and involves an exacerbating factor (ie, recidivism, implementing cent of the average of the fine range. The fine range for illegal horizontal the cartel with sophisticated and elaborate means, or implementing the cartels is 1 per cent to 10 per cent turnover, and 1 per cent to 5 per cent cartel in abuse of dominant or monopolistic position):

308 Cartel Regulation 2021 © Law Business Research 2020 LNT & Partners Vietnam for prohibited vertical cartels. The fine reduction or increase must not Director disqualification exceed the minimum or maximum level of fine. 23 Are individuals involved in cartel activity subject to orders Accordingly, a cartel participant may receive a fine reduction if they: prohibiting them from serving as corporate directors or • prevent, mitigate or remedy inflicted damage; officers? • come forward, arduously assist with the investigation; • are a first-time offender; or Yes. Individuals found guilty of a criminally prosecutable cartel may, in • commit the offence under duress. addition to a pecuniary fine or prison sentence, also be prohibited from holding a position or practising for up to five years. Factors already taken into account when applying the leniency policy are not considered mitigating factors for administrative sanction purposes. Debarment By contrast, a cartel participant may receive a heavier administra- 24 Is debarment from government procurement procedures tive fine if they: automatic, available as a discretionary sanction, or not • are not a first-time offender; available in response to cartel infringements? • take advantage of situations of hardship (eg, war, natural disasters, pandemic) to commit the offence; Debarment from government procurement procedures is available as a • continue the cartel despite cessation request from the authority; or discretionary sanction in response to cartel infringements and depends • commit the offence on a large scale (eg, in terms of volume or on the nature and severity of the infringement. As such, the relevant value of goods). decision-making authority varies. The primary authority is the organisation or individual entitled to In respect of criminally prosecutable cartels, the Penal Code 2015 (as issue debarment decisions with respect to projects within their scope amended) also provides for sentencing principles. As a general rule, of management. The ministries, heads of ministerial-level agencies and when deciding the sentence, the court shall consider the nature and chairpersons of provincial people’s committees have the authority to, severity of the offence as well as any mitigating or aggravating factors. upon recommendation by such organisations or individuals, debar viola- For individuals, the court also considers the violator’s personal back- tors within their respective scope of management, or, in the case of the ground and character. Ministry of Planning and Investment, nationwide. Accordingly, a cartel participant may receive a more lenient crim- The length of debarment ranges from six months to five years inal sanction if they: depending on the severity of the infringement. • prevent, mitigate or remedy inflicted damage; • did not inflict considerable damage; or Parallel proceedings • arduously assist with the detection and investigation of the crime. 25 Where possible sanctions for cartel activity include criminal and civil or administrative penalties, can they be pursued In addition to the above factors, others may be taken into consideration in respect of the same conduct? If not, when and how is the depending on whether the violator is an individual or a corporate. In choice of which sanction to pursue made? the former case, other relevant mitigating factors include the violator committed the offence under duress, turns themselves in, expresses If the violation is criminally prosecutable, criminal penalties shall be a co-operative attitude or contrition, or makes atonement for their pursued to the exclusion of administrative sanctions. Otherwise, if the violation. On the other hand, a corporate violator may receive a lighter violation does not meet the threshold for criminal prosecution, adminis- sanction if it has made considerable contributions to social welfare. trative sanctions shall apply. The list of mitigating factors applicable to criminal sanctions is not In either case, a violator may in addition to criminal or administra- exhaustive. The court has considerable leeway to decide whether to tive sanctions be held liable for damages pursued in a civil action. accept other factors when deciding on a sentence. As for aggravating factors, second-time offenders or dangerous PRIVATE RIGHTS OF ACTION recidivists will be subject to heavier sanctions. In addition, for individ- uals, abusing one’s power or position to carry out the prohibited cartel Private damage claims is also an aggravating factor. 26 Are private damage claims available for direct and indirect purchasers? Do purchasers that acquired the affected Compliance programmes product from non-cartel members also have the ability to 22 Are sanctions reduced if the organisation had a compliance bring claims based on alleged parallel increases in the programme in place at the time of the infringement? prices they paid (‘umbrella purchaser claims’)? What level of damages and cost awards can be recovered? The mere existence of a compliance programme will not help reduce administrative fines because it is not a factor in the exhaustive list of The applicable laws, specifically the Competition Law 2018 and the Law mitigating factors. On the other hand, with regard to criminal sanctions, on Protection of Consumer Rights 2010 (as amended), do not differen- the court may take such programme into account when deciding the tiate between direct and indirect purchasers. Likewise, the laws are sentence. Considering that there has not been any instance where a also silent on passing on and double recovery issues. At this time, the competition violation is criminally prosecuted, this matter remains authors are not aware of any private cartel damage claims in Vietnam. untested. In any case, an effective compliance policy may prove crucial Therefore, it remains to be seen whether the courts would accept a for early detection of cartel activity, thereby putting an undertaking in a passing on defence, whereby the defendants seek to prove that the favourable position in the leniency application process or strengthening claimants incurred no actual loss because they have passed it on to the undertaking’s defensive strategy should a criminal prosecution parties further down the supply chain (eg, end consumers) in the form be pursued. of, for instance, price increases or reduction in discount rate. The laws do not provide for double, treble, or any other forms of punitive or exemplary damages for that matter. On the other hand, cost www.lexology.com/gtdt 309 © Law Business Research 2020 Vietnam LNT & Partners

awards, which include attorney’s fees and other reasonable expenses word ‘amnesty’ is used when referring to the Penal Code leniency policy for preventing and alleviating damages (eg, interim measure charges, to avoid confusion). examining service fees, etc), can be recovered. In practice, it is usually Accordingly, amnesty may be available to individuals if they turn subject to the court to determine whether expenses used to prevent and themselves in, cooperate with the investigation, inform on accomplices, alleviate damage or loss are reasonable. make reparation or compensation for damage inflicted; and to corpo- rates if they actively cooperate in the uncovering or investigation of the Class actions crime, make reparation or compensation for damage inflicted, proac- 27 Are class actions possible? If so, what is the process for such tively prevent or mitigate consequences. cases? If not, what is the scope for representative or group A corporate may be exempt from criminal sanctions if it has fully actions and what is the process for such cases? remedied and compensated for all damage or loss inflicted. This exemp- tion is however entirely at the court’s discretion. Class actions for civil or commercial disputes are generally not avail- There is currently no official guideline on how the NCC shall imple- able and often only allowed in certain limited cases such as labour or ment the leniency policy. As such, many areas related to the leniency consumer protection issues. policy and the implementation thereof remain largely untested. In a consumer protection dispute, for instance, the Law on Protection of Consumer Rights 2010 (as amended) mandates that the Subsequent cooperating parties Provincial Consumer Associations shall be in charge of filing the lawsuit 29 Is there a formal programme providing partial leniency for either on behalf of the consumers to protect the latter’s rights and inter- parties that cooperate after an immunity application has been ests or in their own name to protect public interests. made? If so, what are the basic elements of the programme? The Civil Procedure Code 2015 (as amended) also provides for a If not, to what extent can subsequent cooperating parties mechanism which arguably bears some resemblance to class action expect to receive favourable treatment? regimes. In particular, under article 42, the court may consolidate or merge similar cases (usually if they have the same defendant(s) or the After the first whistle-blower came forward, only two subsequent cartel same or similar legal relations) which it has already accepted into a participants are eligible for a partial fine reduction. They are subject to single case for resolution provided that the merger and resolution of similar eligibility requirements as the first whistle-blower, although the such cases adhere to the laws. How this mechanism works in practice, NCC may apply a higher threshold in assessing the overall value to the especially when there is a significant number of individual disputes, investigation of the evidence they provide. remains to be seen. Given the lack of official leniency guidelines, the NCC would have To the authors’ knowledge, there has not been any competition law significant discretion in determining whether an undertaking qualifies class action so far in Vietnam. for leniency. Cartel participants not eligible for leniency policy can attempt to COOPERATING PARTIES reduce the fine level by taking advantage of the mitigating factors stipu- lated in Decree 75/2019/ND–CP. Immunity 28 Is there an immunity programme? If so, what are the basic Going in second elements of the programme? What is the importance of being 30 How is the second cooperating party treated? Is there an ‘first in’ to cooperate? ‘immunity plus’ or ‘amnesty plus’ treatment available? If so, how does it operate? The Competition Law 2018 provides for a leniency programme, under which co-conspirators participating in a cartel may turn themselves in The first whistle-blower will be entitled to full immunity, while the and assist with a National Competition Commission (NCC) investiga- second and third shall receive a 60 per cent and 40 per cent fine reduc- tion in exchange for either full immunity from, or a reduction of, fines tion respectively. Other than the policies mentioned above, there is no for breach of competition law which the NCC would have otherwise ‘immunity plus’ or ‘amnesty plus’ option, nor a ‘penalty plus’ regime. imposed on them. This is the first time the leniency programme is introduced. Approaching the authorities As the Competition Law 2018 regulates individuals and corporates 31 Are there deadlines for initiating or completing an application alike, either may apply for leniency and the policy applies to all leniency for immunity or partial leniency? Are markers available and seekers in the same manner. what are the time limits and conditions applicable to them? To qualify for leniency an applicant must: • have partaken or is currently partaking in a cartel; Given the limited scope of the leniency policy, applications should be • voluntarily come forward before an investigation is launched; filed as soon as possible before the NCC commences a cartel investiga- • declare honestly and provide all evidence of the infringement tion, even if there is currently no formal marker system. which is significantly valuable to dismantle the cartel; In practice, for various reasons applying for leniency is not always • cooperate fully with the competition authority during the investi- a viable option for undertakings. Deciding the best possible course gation; and of action would therefore require a pros-and-cons analysis and risk • not be a ringleader or a coercer. assessment. Factors to be considered include without limitation: • the possibility of another member abandoning the cartel and Furthermore, only three whistle-blowers are eligible for leniency, with coming forward first (ie, the ‘race to the courthouse’ effect); game the first entitled to full immunity, while the second and third shall theory is usually applied in this case; receive a 60 per cent and 40 per cent fine reduction respectively. • the risk of the competition watchdog already pursuing the The leniency policy is only applicable to administrative sanctions conspiracy; and does not extend to criminal penalties. Instead, a separate amnesty • the exposure of participants to antitrust probes in other jurisdic- mechanism under the Penal Code 2015 (as amended) is applied (the tions (especially in case of a cross-border cartel); and

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• the possibility and severity of the sanctions and remedies imposed, unclear to whom should the respondent’s undertakings be made, and including criminal sanctions; for this particular factor, as the leni- what must be approved by the investigating authority. ency policy does not extend to criminal sanctions, an undertaking should consider carefully if the cartel is criminally prosecutable. Corporate defendant and employees 35 When immunity or partial leniency is granted to a corporate Cooperation defendant, how will its current and former employees be 32 What is the nature, level and timing of cooperation that treated? is required or expected from an immunity applicant? Is there any difference in the requirements or expectations Current and former employees of a corporate entity which is granted for subsequent cooperating parties that are seeking partial leniency are often not subject to any administrative sanction unless leniency? such individuals attempted to hinder or misled the investigation. Criminal amnesty will be subject to criminal provisions. The Competition Law 2018 is silent on the nature, level and timing of coop- eration that is required of or expected from a leniency applicant. Although Dealing with the enforcement agency all applicants are subject to the same leniency conditions, the ‘significant 36 What are the practical steps for an immunity applicant value’ required of the provided evidence may arguably differ between the or subsequent cooperating party in dealing with the first whistle-blower and subsequent applicants. In particular, emphasis enforcement agency? will be placed on the quality of evidence provided, that is, whether and the extent to which it can help discover, investigate, penalise and remedy There is currently no provision on how a leniency application should the violation. Examples of evidence which may prove useful to the inves- be filed with the NCC. It would follow that an application filed by a legal tigators include, for instance, a signed agreement or memorandum, representative of the undertaking or an authorised person (either an an implicating email or instant message exchange between the cartel external counsel or employee) is acceptable. participants, or a voice recording or minutes of a discussion on competi- It is unclear if a leniency application must be made formally in tively sensitive topics (eg, pricing scheme) between them. writing or can be otherwise (eg, orally or anonymously). However, given the local bureaucratic practice, the authors take the view that leniency Confidentiality application should be made formally in writing. 33 What confidentiality protection is afforded to the immunity applicant? Is the same level of confidentiality protection DEFENDING A CASE applicable to subsequent cooperating parties? What information will become public during the proceedings and Disclosure when? 37 What information or evidence is disclosed to a defendant by the enforcement authorities? The Competition Law 2018 does not have any explicit provision on the confidentiality obligation in respect of leniency procedure. The Law All evidence must generally be publicly disclosed, except where it contains however mandates that if requested the NCC must keep confidential state, trade, professional or personal secrets. The latter three will only the identity of and the information provided by the informant, be it an be kept confidential if legitimately requested by the relevant parties. organisation or individual. The provision may be construed to encom- pass all leniency applicants. Representing employees Under article 25 of the Guiding Decree, all evidence must generally 38 May counsel represent employees under investigation in be publicly disclosed, except where it contains state, trade, profes- addition to the corporation that employs them? When should sional or personal secrets. The latter three will be kept confidential a present or past employee be advised to obtain independent if legitimately requested by the participant(s) in the competition legal legal advice or representation? proceedings. In addition, if necessary and at any stage facilitative to the cartel investigation, the NCC has the discretion to publicly disclose in A counsel may concurrently represent a corporate and its employees as whole or in part the evidence. long as no actual or potential conflict of interest arises. In light of the above, to ensure the confidentiality of commercially Whether and when a present or former employee should seek an sensitive information, all leniency applicants should attach a written independent counsel is a matter between this individual and the lawyer; request for confidential treatment to their application and specify the NCC would not intervene in this regard. therein which information they wish to be kept confidential. Multiple corporate defendants Settlements 39 May counsel represent multiple corporate defendants? Does 34 Does the investigating or prosecuting authority have the it depend on whether they are affiliated? ability to enter into a plea bargain, settlement, deferred prosecution agreement (or non-prosecution agreement) or Multiple corporate defendants may be represented by the same counsel other binding resolution with a party to resolve liability and irrespective of their affiliation, if any, provided there is no actual or penalty for alleged cartel activity? What, if any, judicial or potential conflict of interest. other oversight applies to such settlements? Payment of penalties and legal costs The laws of Vietnam are silent on this issue. Article 86.2 of the 40 May a corporation pay the legal penalties imposed on its Competition Law 2018, however, allows the investigating authority to employees and their legal costs? stay an investigation if the complainant withdraws the file, and the respondent undertakes to cease the alleged violation and take remedial As a general principle, any undertaking found to have committed a viola- measures, and receives approval from the investigating authority. It is tion shall bear the legal consequences. www.lexology.com/gtdt 311 © Law Business Research 2020 Vietnam LNT & Partners

In practice, corporates might reimburse employees but such amount would not be treated as tax-deductible expenses.

Taxes 41 Are fines or other penalties tax-deductible? Are private damages payments tax-deductible?

Fines and penalties are not tax-deductible. On the other hand, private damages awards, which are not consid- Nguyen Anh Tuan ered non-deductible expenses under tax regulations, may be eligible for [email protected] deduction if there is valid and accurate documentation. Tran Hai Thinh For tax implications, seeking consultation from a tax specialist [email protected] is advised. Tran Hoang My International double jeopardy [email protected] 42 Do the sanctions imposed on corporations or individuals take into account any penalties imposed in other jurisdictions? In Levels 18 and 21, Bitexco Financial Tower private damage claims, is overlapping liability for damages in 2 Hai Trieu Street, District 1 other jurisdictions taken into account? Ho Chi Minh City Vietnam Neither the Competition Law 2018 nor Decree No. 75/2019/ND–CP Tel: +84 28 3821 2357 specifies rules on international double jeopardy for administrative sanc- tions or private damages awards. Level 12, Pacific Place Building Likewise, the Penal Code 2015 (as amended) is also silent on inter- 83B Ly Thuong Kiet Street, Hoan Kiem District Hanoi national double jeopardy in respect of criminal sanctions. Vietnam Getting the fine down Tel: +84 24 3824 8522

43 What is the optimal way in which to get the fine down? Level 40, Ocean Financial Centre 10 Collyer Quay The best way to mitigate legal repercussions, in general, is through Singapore 049315 early cooperation with the authority in discovering or investigating the Tel: +65 924 02947 offence and through remedies and compensation. These actions will be considered by the authority when assessing either leniency application www.lntpartners.com or mitigating factors under both administrative and criminal sanction regimes. Thus, even if leniency is not an option, a violator may neverthe- less have their fine reduced by mitigating factors. while CPC 1 refused to provide the latter citing lack of Bbraun Vietnam’s UPDATE AND TRENDS consent. Under these circumstances, the initially took the view that the respondents’ behaviour indicated a violation of Recent cases the Competition Law 2018. However, when the regulator requested 44 What were the key cases, judgments and other developments the parties to provide further information for the investigation, they all of the past year? committed to ‘permit [the complainant] to perform the awarded contract as per the bidding package’, thereby effectively closing the case without Since the National Competition Commission (NCC) has not been any final decision or imposition of penalties. established, there is arguably lack of legal standing for the Vietnam Competition and Consumer Authority (VCCA) (ie, the competition Regime reviews and modifications authority under the former regime which is currently acting as a quasi- 45 Are there any ongoing or anticipated reviews or proposed competition watchdog under the new regime) to investigate or handle changes to the legal framework, the immunity/leniency cartel claims. Therefore, for the time being, the VCCA generally does programmes or other elements of the regime? not proactively enforce cartel cases. However, enforcement practice is expected to be more robust once the NCC is formally established. The most anticipated development at the moment is the formal estab- The latest publicly known case handled by the competition regu- lishment of the new competition regulator, the NCC. With the new law lator concerns a group of companies in the medical equipment sector. effective recently and the new regulator to be established, the compe- Specifically, the complainant, An Phu Trading and Medical JSC, lodged tition landscape in Vietnam is expected to see drastic changes in the a complaint against Central Pharmaceutical 1 JSC (CPC 1) and Bbraun coming years. In the past years, cartels were one of the most common Vietnam Limited (Bbraun Vietnam) for refusing to provide them with the violations detected and sanctioned by the competition authority. In documentation necessary for their participation in a medical equipment the near future, with the removal of market share threshold for initi- tender solicited by a local health department. Given that the complainant ating a cartel probe and introduction of a leniency programme, the was bidding with Bbraun-manufactured products, the health department authors anticipate that cartel investigations and enforcement will be required the complainant to submit a sale authorisation from Bbraun more vigorous. Vietnam and proof of collaboration between Bbraun Vietnam and CPC1. Bbraun Vietnam refused to provide the complainant with the former on the ground that it had issued one to the complainant’s competitor,

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Coronavirus 46 What emergency legislation, relief programmes, enforcement policies and other initiatives related to competitor conduct have been implemented by the government or enforcement authorities to address the pandemic? What best practices are advisable for clients?

The initial government relief package does not cover competitor conduct but only provides for, among other things, financial aids in the forms of a 10 per cent cut in retail electricity tariff, capital support, deferment of payments of taxes and land rent. According to media reports, the proposed second aid package will focus more on financial support designed to stimulate aggregate demands. There is no indica- tion that the government will encourage the formation of crisis cartels or similar conduct to dampen the socio-economic impact of the corona- virus pandemic.

www.lexology.com/gtdt 313 © Law Business Research 2020 Quick reference tables

These tables are for quick reference only. They are not intended to provide exhaustive procedural guidelines, nor to be treated as a substitute for specific advice. The information in each table has been supplied by the authors of the chapter.

Argentina Is the regime criminal, Administrative. civil or administrative? What is the maximum 200 million adjustable units (equivalent to 8.122 million Argentine pesos). sanction? Are there immunity or Yes. leniency programmes? Does the regime extend to conduct outside the Yes, if they have effects in Argentina. jurisdiction?

Australia Is the regime criminal, The Australian competition law regime prohibits cartels under civil law and makes it a criminal offence for corporations and individuals civil or administrative? to participate in a cartel (or attempt to do so). For corporations: • A$10 million; • three times the total benefits that have been obtained and which are reasonably attributable to the conduct; or What is the maximum • where the benefits cannot be determined, 10 per cent of the corporate group’s annual turnover in the preceding 12 months. sanction? For individuals: • up to 10 years in jail or fines of up to $420 000 per criminal cartel offence or both; or • a pecuniary penalty of up to $500 000 per civil contravention. Are there immunity or Yes. The ACCC Immunity and Cooperation Policy sets out the policies of the Australian Competition and Consumer Commission (ACCC) in leniency programmes? relation to applications for both civil and criminal immunity from ACCC-initiated civil proceedings and criminal prosecution. Where the cartel conduct occurs outside of Australia, the conduct only falls within the CCA if: • it is carried on by: Does the regime extend • companies carrying on business within Australia; to conduct outside the • Australian citizens; or jurisdiction? • persons ordinarily resident in Australia; and • the parties are in competition with each other in trade or commerce within Australia or between Australia and places outside Australia.

Austria Is the regime criminal, Fines of the Cartel Court for cartel activities are usually considered sanctions within the meaning of criminal law due to the severe civil or administrative? nature of the sanction (see also article 6 of the European Convention on Human Rights). What is the maximum The maximum fine that may be imposed for cartel activity based on the Austrian Cartel Act 2005 is 10 per cent of the undertaking’s or sanction? association’s previous financial year’s aggregated turnover. Are there immunity or Yes. Immunity or a reduction of fines imposed based on the Cartel Act is available, based on the provisions of the Austrian Competition leniency programmes? Act 2002. Does the regime extend to conduct outside the The Austrian cartel law regime extends to conduct outside Austria’s jurisdiction if the conduct affects Austria. jurisdiction?

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Belgium Is the regime criminal, The regime is of administrative nature with civil liability. Individuals can be administratively prosecuted and sanctioned. civil or administrative? What is the maximum Fines imposed on a company cannot exceed 10 per cent of the worldwide turnover. Fines imposed on individuals cannot exceed €10,000. sanction? Are there immunity or Both immunity and leniency regimes are available for companies and individuals under Belgian law. leniency programmes? Does the regime extend No, the immunity and leniency regimes are limited to the cartel’s activities performed by the investigated undertaking in Belgium to conduct outside the (cooperation with neighbouring countries is very advanced). jurisdiction?

Brazil Is the regime criminal, A cartel is administratively (for companies, individuals and associations) and criminally (for individuals) prosecuted in Brazil. Companies civil or administrative? and individuals are also liable for civil damages. For companies, the maximum administrative fine is 20 per cent of the gross revenue of the company, group, or conglomerate, in the fiscal year before the initiation of the administrative process, in the field of the business activity in which the violation occurred. What is the maximum For individuals in managerial positions (CEOs, directors, managers, etc) directly or indirectly responsible for the violation, a maximum sanction? administrative fine of 20 per cent of the fine imposed on the company. For other individuals or public or private legal entities, a maximum administrative fine of 2 billion reais. For individuals, the maximum criminal penalty is imprisonment of five years. Are there immunity or Yes. The leniency agreement and TCC. leniency programmes? Does the regime extend to conduct outside the Yes. If the misconduct has direct or indirect effects in Brazil, even if potentially. jurisdiction?

Canada Is the regime criminal, The regime has both criminal and civil/administrative provisions civil or administrative? A price-fixing, customer/market allocation, or output restriction conviction carries penalties of up to 14 years in prison and fines of up to What is the maximum C$25 million (five years and C$10 million for pre-2010 conduct). In foreign-directed conspiracies and bid rigging, corporations are liable sanction? to a fine at the discretion of the court. The civil/administrative provisions permit a prohibition order only. Are there immunity or A highly successful immunity programme has been in place since 2000. It is also complemented by a formal leniency programme for leniency programmes? subsequent cooperating parties. Further updates were released in September 2018. Does the regime extend International conspiracies directed at Canadian markets fall within the jurisdictional scope of the Competition Act. However, conspiracies to conduct outside the that relate only to the export of products from Canada are expressly exempted. jurisdiction? Amendments that came into force in 2010 have significantly changed the former ‘partial rule-of-reason’ approach to criminal Remarks conspiracies. The Act now provides for a per se criminal cartel offence and a civil reviewable practice dealing with other competitor collaboration agreements.

China Is the regime criminal, The regime is civil and administrative. civil or administrative? What is the maximum 10 per cent of worldwide turnover plus confiscate the illegal income. sanction? Are there immunity or Yes. There are leniency programmes. leniency programmes?

Does the regime extend to conduct outside the Yes. The regime has exterritorial jurisdiction. jurisdiction?

Denmark Is the regime criminal, The regime is criminal. civil or administrative? Private damage claims are possible through the criminal regime. Imprisonment may be imposed on individuals. The maximum term of imprisonment is one and a half years but may be increased up to What is the maximum six years in case of aggravating circumstances. sanction? Fines should not exceed 10 per cent of the legal undertaking’s worldwide turnover. Are there immunity or The Act provides for a leniency programme, which is comparable to the leniency programme set out under EU law. leniency programmes? Does the regime extend The Act contains no extraterritoriality, except for section 29, which provides that the Act does not apply to the Faroe Islands and to conduct outside the Greenland. jurisdiction?

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European Union The procedure before the EC is administrative. The EC enjoys wide powers of investigation (eg, to request information, take statements Is the regime criminal, and conduct on-site inspections). If it establishes an infringement to competition law, it has the power to impose significant fines on civil or administrative? undertakings. EC decisions may be appealed before EU courts. What is the maximum Pursuant to article 23(2) of Regulation No. 1/2003, the EC may impose fines of up to 10 per cent of an undertaking’s total turnover in the sanction? business year preceding the decision. The EC’s leniency programme is detailed in its 2006 guidelines. The first company that denounces the cartel and actively cooperates with Are there immunity or the EC can be granted full immunity from a fine. Provided that they bring sufficient added value to the EC, other companies can then leniency programmes? benefit from reductions of fines that range from 30 per cent to 50 per cent for the second company that denounces the infringement, 20 per cent to 30 per cent for the third company, and up to 20 per cent for subsequent ones. Does the regime extend The Commission’s jurisdiction extends to conduct outside of the EU, provided that such conduct has an effect in the EU. In the context to conduct outside the of a cartel with a global scope, the EC may decide to include in its calculation of the value of sales, sales made outside the EEA, if sales jurisdiction? made within the EEA alone do not adequately reflect the weight of each participant in the infringement. Remarks The EC does not impose fine or criminal sanctions on individuals, but such penalties exist at the national level in several member states.

Finland Is the regime criminal, The regime is administrative. civil or administrative? What is the maximum The maximum fine can be up to 10 per cent of the undertaking’s total annual turnover in the last year of its cartel participation. sanction? Are there immunity or Yes, there is immunity and leniency programmes largely harmonised with that of the Commission and the ECN. leniency programmes? Does the regime extend to conduct outside the Yes, if such conduct has effects in Finland. jurisdiction?

France Is the regime criminal, The regime is administrative and criminal. civil or administrative? What is the maximum The FCA may impose fines of up to 10 per cent of an undertaking’s total annual worldwide turnover. sanction? Are there immunity or French law offers leniency programmes before the FCA. Total or partial immunity can be granted, but this does not prevent the applicant leniency programmes? for leniency from facing payment of damages to the victims of the competition law breach. Does the regime extend French competition law applies to concerted actions, agreements, or alliances that have the objective to affect the French market or to conduct outside the have an effect on the French market, regardless of the place where the companies involved have their headquarters and the conduct jurisdiction? took place.

Germany Is the regime criminal, Administrative. civil or administrative? Fines imposed against natural persons are limited to €1 million. What is the maximum An undertaking can be fined up to 10 per cent of its total turnover in the business year preceding the competition authority’s decision. sanction? The competition authority can also impose a fine on an association of undertakings of up to 10 per cent of the aggregate turnover of its members operating in the market affected by the infringement. Are there immunity or Yes. leniency programmes? Does the regime extend The GWB applies to all restraints of competition affecting the German market, even if they were caused outside the country by foreign to conduct outside the undertakings. jurisdiction?

Hong Kong Is the regime criminal, Civil and prosecutorial regime. However, the criminal standard of proof (beyond a reasonable doubt) applies due to quasi-criminal nature civil or administrative? of the proceedings. What is the maximum The pecuniary penalty is capped at 10 per cent of the group turnover in Hong Kong for each year of contravention, up to a maximum of sanction? three years. Are there immunity or The Commission has leniency programmes for undertakings and individuals engaged in cartel conduct. Undertakings that do not qualify for leniency programmes? leniency can cooperate with the Commission, which may recommend a cooperation discount of up to 50 per cent on the pecuniary penalty. Does the regime extend to conduct outside the The regime applies to conduct outside Hong Kong so long as it has an impact in Hong Kong. jurisdiction? Cartel conduct has been the focus of the Commission’s enforcement. To date, all cases brought by the Commission to the Tribunal are Remarks against cartel conduct.

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India Is the regime criminal, The regime is civil in nature. civil or administrative? What is the maximum A penalty of up to three times the profit of the participating firm for each year of the continuance of the cartel or 10 per cent of its sanction? relevant turnover for each year of the continuance of the cartel, whichever is higher, can be imposed. Are there immunity or A leniency programme is available in terms of the Competition Commission of India (Lesser Penalty) Regulations 2009, read with section leniency programmes? 46 of the Competition Act 2002. Does the regime extend to conduct outside the The regime extends to conduct outside India if such conduct has an appreciable adverse effect on competition in India. jurisdiction? The development of competition law jurisprudence in India is still in its infancy. Several cases that are likely to have bearing on Remarks important aspects of the procedural law as well as the substantive law as interpreted by the CCI are still pending before the first appellate forum (ie, the NCLAT) or the Supreme Court (ie, the second and the final appellate forum) for adjudication.

Japan Is the regime criminal, Administrative, criminal and includes civil (private action). civil or administrative? Criminal: servitude of up to five years and fines of up to ¥5 million for individuals, and ¥500 million for corporations (for large enterprises). What is the maximum Administrative: surcharge of, in principle, 10 per cent of sales of cartel goods/services over the cartel period up to the previous three years. sanction? Civil: the amount of damage; no triple damage. Are there immunity or Yes, effective 4 January 2006. Amended as of 1 January 2010. A further amendment is expected upon the amendment of the leniency programmes? Antimonopoly Law effective sometime in 2019 or 2020. Does the regime extend to conduct outside the Yes, the Japan Fair Trade Commission may challenge conduct affecting the Japanese market. jurisdiction? Amendment to the Antimonopoly Law regarding the reform of the administrative proceeding became effective as of 1 April 2015. Remarks Amendment to the Criminal Procedure Law regarding the introduction of the plea bargaining system for certain types of crimes including violation of the Antimonopoly Law (eg, cartel) became effective as of 1 June 2018.

Korea Is the regime criminal, Administrative and criminal, with civil damages actions available. civil or administrative? What is the maximum Ten per cent of relevant sales in administrative fines and a criminal fine of 200 million won for corporations, as well as a criminal fine of sanction? the same amount and imprisonment of three years for individuals. Are there immunity or Yes, the programme is fairly effective. leniency programmes? Does the regime extend to conduct outside the Yes, if the conduct has an effect on the Korean market. jurisdiction? Remarks Strengthening enforcement with high administrative fines and increasingly frequent criminal prosecutions.

Malaysia Is the regime criminal, Civil, however, obstructing MyCC’s investigation may lead to criminal sanctions. civil or administrative? What is the maximum 10 per cent of the worldwide turnover of the enterprise over the period of the infringement. sanction? Are there immunity or Yes. leniency programmes? Does the regime extend to conduct outside the Yes. jurisdiction?

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Mexico The regime is administrative, criminal and civil. Administrative sanctions are imposed by the Federal Economic Competition Commission Is the regime criminal, (COFECE). Criminal sanctions are imposed by criminal courts. Compensation for damages is awarded by federal specialised courts in civil or administrative? competition, broadcasting and telecommunications. An individual faces up to 10 years in prison for committing cartel conduct. Fines to direct offenders add up to 10 per cent of the offender’s income. Individuals that represent or collaborate with the company in committing anticompetitive practices are liable to receive, respectively, What is the maximum fines of approximately 18 million pesos. Also, those who acted on behalf of the company face disqualification from acting as an adviser, sanction? administrator, director, manager, officer, executive, agent, representative or proxy at any company for up to five years. In cases of recidivism, the COFECE may impose a fine of up to two times the applicable fine or order the divestiture of assets. There is no limit for damages awarded as a result of anticompetitive conduct. Yes. The first in to apply for the programme may obtain full immunity (ie, the defendant will be fined a symbolic amount). Second and Are there immunity or subsequent qualified applicants may obtain reductions of up to 50, 30 and 20 per cent of the applicable fine. All qualified applicants will leniency programmes? obtain full immunity from criminal liability. Immunity does not reach civil liability for monetary damages. Does the regime extend Cartel conduct performed abroad will be sanctioned by the COFECE if it produces effects in Mexican territory. The existence of to conduct outside the subsidiaries and affiliates in Mexico has been considered by the COFECE as indicia of the extensive effects of the practice in Mexico’s jurisdiction? national territory. In June 2013, the Constitution was amended to transform the competition commission into an autonomous constitutional entity and to increase the effectiveness of competition policy and law enforcement. On 7 July 2014, a new Competition Law and modifications to the Federal Criminal Code came into force. In November 2014, the CFCE issued new Regulations of the LFCE. In January 2015, the Federal Telecommunications Institute issued new regulations of the LFCE, regarding broadcasting and telecommunications industries. Remarks In June 2015, the COFECE issued new guidelines regarding the amnesty programme and the initiation of investigations. In December 2015, the CFCE published guidelines for information exchange among competitors and regarding cartel investigation procedures. In September 2016, the IFT published the draft of its guidelines on the Immunity and Reduction of Sanctions Programme, which are currently subject to a public inquiry. In January 2017, the IFT published the Guidelines on the Immunity and Reduction of Sanctions Programme.

Portugal The regime is mainly administrative and quasi-criminal, with fines and periodic penalty payments as sanctions. Civil sanctions include Is the regime criminal, nullity of agreements. Third-party claims for damages may also be filed under the Damages Act (Law No. 23/18 of 5 June) and the civil or administrative? general principles of civil liability. Fines of up to 10 per cent of the turnover in the year immediately preceding that of the final decision adopted by the Competition What is the maximum Authority. Multiple infringements are punished with a fine, the maximum limit of which is the sum of the fines applicable to each sanction? infringement. However, the total fine cannot exceed the double of the higher limit of the fines applicable to the infringements in question. Are there immunity or Yes. The programme provides for full immunity or reduction of the fines that would apply to the infringement. leniency programmes? Does the regime extend to conduct outside the Yes, if such conduct produces effects within Portugal. jurisdiction? Law No. 19/2012 of 8 May (the Act) put in place the new Competition regime, thereby superseding Law No. 18/2003, of 11 June 2003. Remarks The Act considerably enhanced the powers of investigation granted to the Authority, notably in respect of investigation of restrictive practices.

Singapore Is the regime criminal, The competition law regime in Singapore is administrative in nature. civil or administrative? The Competition and Consumer Commission of Singapore (CCCS) may impose a financial penalty (where the infringement has been What is the maximum committed intentionally or negligently) of up to 10 per cent of such turnover of the business of the infringing undertaking in Singapore sanction? for each year of infringement, up to a maximum of three years. In addition, the CCCS may make directions to bring an infringement to an end, or to mitigate the adverse effect of the infringement. Are there immunity or Yes. The CCCS operates a leniency programme, which encompasses the prospect of full immunity. This programme includes a leniency leniency programmes? plus system and a marker system. Does the regime extend Yes. Such activities will be prohibited by the section 34 prohibition if they have the object or effect of preventing, restricting or distorting to conduct outside the competition within Singapore. jurisdiction? The CCCS has the ability to enter into cooperation agreements with foreign competition bodies. The CCCS inked its first cross-border Remarks enforcement cooperation agreement with the Japan Fair Trade Commission on 22 June 2017, and its second cross-border enforcement cooperation agreement with the Indonesian Commission for the Supervision of Business Competition on 30 August 2018.

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Slovenia Is the regime criminal, The regime is a mix of administrative and criminal. civil or administrative? Administrative • For undertakings: up to 10 per cent of the annual turnover of the undertaking in the preceding business year. • For individuals: up to €30,000. What is the maximum sanction? Criminal • For undertakings: up to 200 times the amount of damages caused or illegal benefit obtained through the criminal offence. • For individuals: up to five years’ imprisonment. Are there immunity or Yes leniency programmes? Does the regime extend to conduct outside the Yes, if the conduct has the object or effect of restricting competition in the Slovenian market or the internal market of the EU. jurisdiction?

Spain Enforcement is administrative. Is the regime criminal, Stand-alone or follow-on damage claims are heard before the civil courts. civil or administrative? No criminal enforcement, but some criminal offences can overlap with cartels. Up to 10 per cent of the infringing undertaking’s annual turnover per infringement. What is the maximum For legal representatives or members of management bodies with direct participation, up to €60,000 per infringement (this may be sanction? increased to €400,000). Are there immunity or Yes, there is a leniency programme that provides full exemption of the fine to the first applicant that reveals the existence of a cartel, and leniency programmes? reductions to applicants that cooperate after the CNMC is aware of the cartel. Does the regime extend Any conduct taking place outside Spain which affects or may affect competition in all or part of the Spanish market has the potential to to conduct outside the be covered by the cartel prohibition. jurisdiction? The Spanish Law for the Defence of Competition is currently under review. Among the modifications is the possible introduction of Remarks settling cartel cases (with a discount on the fine up to 15 per cent), similar to the EU procedure. This was previously not available under Spanish legislation.

Sweden Is the regime criminal, The regime is civil and administrative. There are no criminal sanctions for cartel activity. civil or administrative? What is the maximum The fine may not exceed 10 per cent of the concerned undertaking’s turnover of the previous financial year. sanction? Are there immunity or Yes, a system for immunity and leniency, largely similar to the EU’s system, is in force. leniency programmes? Does the regime extend An agreement between undertakings situated outside Sweden may be prohibited if the agreement has actual or potential effects in to conduct outside the Sweden. jurisdiction?

Switzerland For undertakings, the regime is civil and administrative. However, fines for hard-core restraints do also qualify as criminal sanctions inter alia in the meaning of the European Convention of Human Rights and investigations should in principle respect the respective Is the regime criminal, procedural rights. civil or administrative? For individuals, there are no direct criminal sanctions for cartel activities. However, individuals acting for an undertaking (but not the undertaking itself) and violating an amicable settlement decision, any other legally enforceable decision or a court judgment in cartel matters, or intentionally failing to comply or only partially complying with the obligation to provide information, may be fined. The maximum administrative fine for undertakings is 10 per cent of the consolidated net turnover generated in Switzerland during the last three business years (cumulative). What is the maximum The competition authorities may impose administrative sanctions on undertakings if they violate an amicable settlement, decision or sanction? judgment to their own advantage. The maximum criminal sanction for individuals is 100,000 Swiss francs. Are there immunity or Yes, as of 1 May 2004. leniency programmes? Does the regime extend to conduct outside the Yes, as long as the conduct may have effects within Switzerland. jurisdiction?

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Turkey Is the regime criminal, The Turkish cartel regime is administrative and civil in nature, not criminal. That being said, certain antitrust violations, such as bid civil or administrative? rigging in public tenders and illegal price manipulation, may also be criminally prosecutable, depending on the circumstances. In the case of proven cartel activity, the companies concerned shall be separately subject to fines of up to 10 per cent of their Turkish What is the maximum turnover generated in the financial year preceding the date of the fining decision (if this is not calculable, the turnover generated in the sanction? financial year nearest to the date of the fining decision will be taken into account). Are there immunity or Yes leniency programmes? Turkey is one of the ‘effect theory’ jurisdictions, where what matters is whether the cartel activity has produced effects on Turkish Does the regime extend markets, regardless of: to conduct outside the • the nationality of the cartel members; jurisdiction? • where the cartel activity took place; or • whether the members have a subsidiary in Turkey.

Ukraine Administrative sanctions for the violation of legislation on competition are imposed by the AMCU.In addition, administrative responsibility Is the regime criminal, may be imposed on authorised persons or employees of an undertaking in the event of a violation by said persons of the Code of Ukraine civil or administrative? on administrative offences. Horizontal anticompetitive concerted actions of undertakings (cartels) are subject to the severest punishments. For such actions, the What is the maximum AMCU regulations provide for a basic fine of 45 per cent of income (revenue) from sales of goods (works, services) or the buyer’s sanction? expenses on the purchase of a product, either directly or indirectly related to the violation. The amount of the fine shall not exceed 10 per cent of the total turnover of the undertaking. Leniency programmes are allowed in Ukraine. A full release from liability is granted only to the participant in collusion that first appealed to the AMCU with its application. The proof of first application is the marker letter of the AMCU. Member cartels claiming immunity must first voluntarily notify the antimonopoly authority about their participation in anticompetitive Are there immunity or concerted actions. At the same time, a participant has to provide information that is essential for rendering a decision on the case. leniency programmes? Throughout the investigation, this party should cooperate as much as possible with the antimonopoly agency. The party is not relieved from liability and does not receive immunity if it acted as the initiator of anticompetitive concerted actions; tried to control such actions; or has not provided all the evidence and information on the commitment of anticompetitive concerted actions. Does the regime extend No, the regime does not extend outside the jurisdiction. to conduct outside the To date, there are no examples of cooperation between other jurisdictions and Ukraine. jurisdiction? In January 2016, the economic part of the Association Agreement between Ukraine and the EU came into force. In accordance with the agreement, a number of regulations of the EU Council and the EU Commission for the protection and development of economic Remarks competition are subject to implementation in the Ukrainian legal system. Ukraine has already taken the first steps in aligning its competition laws and law enforcement practices with EU standards by amending existing laws and regulations.

United Kingdom Is the regime criminal, Criminal and civil. civil or administrative? What is the maximum Civil – 10 per cent of the undertaking’s worldwide turnover for the previous business year. sanction? Criminal – imprisonment for a maximum of five years. Are there immunity or Yes leniency programmes? Does the regime extend to conduct outside the Yes, if an agreement is implemented in the United Kingdom. jurisdiction?

United States Is the regime criminal, The US regime has criminal, civil and administrative elements. Criminal actions are, by Department of Justice (DOJ) policy, reserved for civil or administrative? per se violations of the antitrust laws, which generally include price-fixing agreements, bid rigging, and market allocation agreements. For corporations, the maximum criminal fine is the greater of US$100 million, twice the gross gain from the offence, or twice the gross What is the maximum loss to victims of the offence. For individuals, the maximum criminal fine is US$1 million and up to 10 years’ imprisonment. sanction? In civil litigation, there are no maximum damage awards, and private parties are entitled to recover treble their actual damages plus attorneys’ fees. The DOJ’s formal leniency programme provides full immunity for criminal antitrust violations for the first to file, pending satisfaction of Are there immunity or the programme criteria. Under the Antitrust Criminal Penalties Enhancement Reform Act of 2004, the leniency recipient may be eligible leniency programmes? for reduced civil damages (single, not treble) and avoid joint and several liability in civil litigation. Does the regime extend The Sherman Act applies to extraterritorial conduct to the extent it involves either import commerce or foreign commerce that has a to conduct outside the direct, substantial and reasonably foreseeable effect on US domestic commerce or US exporters. In civil actions, the plaintiff bears the jurisdiction? additional burden of establishing that their claim arose from that direct, substantial and reasonably foreseeable effect.

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Vietnam Is the regime criminal, All three. civil or administrative? What is the maximum For corporates: a fine of up to 5 billion dong or suspension of up to two years. sanction? For individuals: a fine of up to 3 billion dong or imprisonment up to five years. Are there immunity or There is a leniency policy applicable to administrative sanctions and an amnesty regime for criminal sanctions. leniency programmes? Does the regime extend to conduct outside the Yes, if such conduct has an actual or potential adverse impact on the domestic market. jurisdiction? No official leniency policy guideline is available. There has been no prosecution under the new regime. Remarks The new competition watchdog has not been formally established. The new competition watchdog has not been formally established as yet.

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ISBN 978-1-83862-310-4

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